UK Economy in Record Recession


It was announced that despite positive signs of growth the UK economy shrank by 0.4% during July to September, which leaves the country still officially in recession. The July to September quarter is the sixth straight quarter of contraction, meaning this is the longest recession since 1955.

However it is not all doom and gloom just yet; as this is a first estimate, the final total could still be revised up or down.

On news of the continued recession the pound fell against other currencies, especially in light of the fact that France, Germany and Japan have all technically come out of recession.

Earlier predictions were that the economy would grow by 0.2% and bring us out of recession, however the lack of growth in the retail sector coupled with a 2.5% decline in industrial output helped the economy stay in recession for a record breaking length. There was also an unexpected decline in the service sector which was a key factor behind the drop in the economy.

One explanation given for the UK’s failure to leave recession compared to that of France and Germany is our economy’s reliance on the service and financial sectors.

Since last year the economy has contracted 5.2% which has been an improvement on the 5.5% figure seen in the previous three months. The economy has now contacted by 5.9% since its peak before the recession.

The news of the continued recession is likely to make the Bank of England reconsider extending it quantitive easing policy. Quantitive easing is the banks policy of printing money to buy bonds from banks and other business inured to help stimulate the economy. The 175bn announced for the quantitive easing program is likely to run out soon, many believe at the banks current rate of spending the money will have all been spent by the beginning of November. The bank will have to decide at their next Monetary Policy Committee meeting on the 4th November if to increase the quantitive easing policy and if so by how much.

Despite the bad signs for the economy the public has been relatively confident over the past few months and with Christmas and the rise in VAT at the beginning of January it is hoped consumers will continue to spend during the next quarter and hopefully bring us out of recession in 2010.


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