Recession risk in UK Finance.
On Tuesday, a survey conducted by the British chamber of commerce showed that the UK’s economy faces a risk of getting shrunk in the first half of 2012 owing to the crisis in the Euro zone during the last year. Britain’s economy had already been at a stagnant level in the last quarter because of the same reason.
John Longworth, BCC Director General said, “A new recession is not a foregone conclusion. However, action is needed urgently to tackle short-term stagnation and a lack of business confidence, damaged by the ongoing euro zone crisis.” Nearly 8000 members were polled by the BCC to reach to this conclusion and it just fell short of announcing a recession. This represents those firms who have one in every six British worker. However, it has said that everything depends much on the efforts of the Government to help the business sector. This forecast by the BCC is in tune with the reports submitted by the Bank of England and also other Economists. The data submitted by the retail sector and the property market lately also clearly points out to this fact that a recession or an Economy crunch is on the way. Both the manufacturing sector and the service sector companies were covered in the survey. The weakest domestic sales growth since Q3 in 2009 was reported by the manufacturing companies while the orders saw the fastest decline since Q2 2009. The service sector however showed better signs with the sales showing growth at the end of the last month of 2011 because of which the firms expected the profits to become constant since Q3 of 2009. BCC chief economist David Kern said, “A new recession is not a foregone conclusion. However, action is needed urgently to tackle short-term stagnation and a lack of business confidence, damaged by the ongoing euro zone crisis.” A growth of just 0.7 per cent is being predicted this year by Office of Budget Responsibility which is the independent forecasting unit of the Government. However, any kind of fiscal boost to the business is limited by the Government’s commitment to eliminate the budget deficit by the time of the next elections which are due in 2015. In the month of October, the bank had restarted its program to quantitatively ease the situation by an extra seventy five billion pounds of gilt purchases over a period of four months.
Apart from this, the bank is supposed to add more fifty billion pounds at the meeting which will be held in the month of February. This will make the total amount to three hundred and twenty five billion pounds. However, the British Chamber of Commerce has warned in advance that this policy adopted by the Bank of England will not be of much help to pull out the Economy out of its crisis. Mr. Kern said, “QE will not achieve its full potential in supporting growth unless supplemented by the early introduction of a sizable and effective credit-easing program.” He also said that the government needs to cut red tape and reallocate its spending.