Britain Escapes Double Dip Recession

According to the Office for Budget Responsibility, Britain should escape a double dip recession in 2012. They have recently published figures suggesting that growth in 2012 will rise from 0.7% to 0.8%. Whilst these growth rates are paltry it means that fortunately the groundswell of opinion in the UK is that Britain will not return to a recession.

This is despite a number of credit rating agencies which have given the UK a negative outlook for the next couple of years. Both Moody’s and Fitch have both announced a negative outlook for the UK which would have an adverse effect on the UK government’s ability to borrow money.

Following the UK Chancellor, George Osborne’s recent budget the Office for Budget Responsibility believes that their should not be a adverse effect on the UK’s growth rate. However the OBR has revised it’s growth rates for 2013 believing that growth will be at a rate of 2% against a predicted rate of 2.1%.

This will not help bringing the UK out of its current slump although wage rate growth is expected to exceed inflation next year of 2.6% against inflation of 1.9% which can only be a good thing.

UK borrowing by 2015-16 is on track to be around 1.1% of GDP to around £21bn against current rates of 8.3% and £126bn.

There are a number of concerns within the British economy which could continue to hold back growth. Firstly consumer spending continues to remain low, as a consequence of their uncertainty with regards the future. Secondly, and of greater concern to Osborne, is that business investment is predicted to remain, if not decline, from 7.7% to 7% for the next year. Business investment growth has remained low as a result of poor confidence and difficulty in raising capital from banks. Even though the Government owned banks have been given lending targets, they are still failing to meet them.

Finally unemployment is forecasted to decline by only 0.1% in the next 12 months. It will be interesting to see the effect of this on the Coalition over the next months and years. It has been some time since unemployment rates were less than 8%.

A double dip recession is calculated as 2 consecutive quarters of negative growth. Even though the short to medium term is not looking positive it looks like things will remain stagnant rather than recessionary.

For more information on Britain and its potential double dip recession please contact us here.

 

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