The Spectre of Double dip Recession

The office of national statistics (ONS) has released its first estimate of the final quarter of 2010 and shocked the business world. According to its initial estimate based on the information it has so far collected on the last quarter of 2010 the British economy shrunk by half a percent.

As the new ConDem coalition government drove forward harsh austerity programmes it appears the fragile recovery may be evaporating and the spectre of double dip recession is nearing the inevitable. The government has attempted to defend its position by laying the blame on the wintry weather, which affected consumer spending during Christmas. However the Office for National Statistics said without the wintry weather GDP would probably have been flat – suggesting that the UK economy had already run out of steam before the snow hit.

With inflation hitting 3.7% last month, there are growing fears the UK is heading for an unpleasant dose of stagflation.

The issue currently is if the first quarter of 2011 also shrinks then we will officially be in a double dip recession.

Western governments spent unprecedented amounts of printed money to bail out their banks, they passed on the costs of such debts to their citizens through austerity programmes and we are today on the brink of being in the same position we were on the eve of the global economic crisis.

The problem with the UK is the boom of the last decade was driven by the expansion of the financial sector, public sector job creation and the housing bubble. The financial sector collapse burst the housing bubble while the public sector’s contribution to the economy came to an end as it suffered most from the government austerity programme.

Brian Bethune, economist at IHS Global Insight highlighted this in the summer of 2010: “It’s good to have the economy growing again, but we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus. The challenge here is to get organic growth – growth that isn’t helped by fiscal steroids.”
Looking across Europe at the crumbling economies of Greece, Ireland, Portugal et al and the USA, its ironic that the UK is widely regarded as an economy that has got its house in order. The release of today’s data exposes the malaise in one of the “better” western economies.

Capitalism is not yet out of the woods! (Ends)

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