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One more quarter of negative economic growth and the UK will be back in recession. But even after today’s news that the economy contracted by 0.2% in the last three months of 2011, this is not inevitable.
In fact, an unscientific summary of economists’ reactions to the numbers suggests we may just escape a double dip. It may just feel like one anyway.
George Buckley, Deutsche Bank: ‘Double dips have been rare in the post-war period. If the recovery continued at this pace, then it would take until the end of 2014 before GDP reached its peak again – in other words, almost seven years to get back to its pre-recession peak.
‘Things could be worse. Our current view is for a further contraction in the current quarter, though the recovery in the December PMI – if maintained – could mean that growth turns positive again in Q1 and we avoid technical recession.’
Allan Monks, JP Morgan: ‘Though media reports may not view today’s report in this light, risks to our forecast for current quarter GDP (flat) have been creeping to the upside.
‘Even if the UK does avoid recession, there appears little scope for a meaningful recovery during 1H12.’
Brian Hilliard, Société Générale: ‘There was a downward distortion from the public sector strike in November which depressed output in that month and in the quarter. The prospects for Q1 are brighter in the absence of this distortion, plus a potential stabilisation of industrial production and private sector services output. GDP growth will struggle to generate a positive number in Q1 but the headlines describing the Q4 data as signalling the re-entry to recession are premature.’
Ian Kernohan, Royal London Asset Management: ‘Preliminary estimates of GDP attract a lot of attention, although they tend to get revised at some point in the future, as more information comes in. Given the likelihood of revisions, this small decline in GDP is pretty close to current BOE and OBR expectations, so it shouldn't have major implications for either monetary or fiscal policy settings in the near term. The Bank will extend their QE operation next month and I doubt if the OBR will change their growth forecasts at the Budget in March. The UK economy seems close to stall speed, although during any fragile recovery from a major financial crisis, this is not a huge surprise.’
James Knightley, ING: ‘Unfortunately UK economic activity is likely to get worse before it gets better with a technical recession likely to be confirmed by 1Q12 GDP numbers.
‘That said, we are more optimistic on the second half given tax changes will put an extra £1bn in the pockets of low and middle income earners while compensation payments from the miss-selling of payment protection insurance will also help. Key will be the sharp drop in inflation, which could finally allow real incomes to turn positive in late 2012.
‘Furthermore, assuming we do get some form of resolution to the sovereign debt crisis then positive risk appetite could push asset prices higher and help boost both consumer and business confidence. Such an outcome would encourage firms to invest and get the recovery back on track.'
Howard Archer, IHS Global Insight: 'The economy stuck one foot back through the recession door in the fourth quarter of 2011 as GDP contracted 0.2% quarter-on-quarter. We suspect that the second foot will follow in the first quarter of this year as still pressurised and worried consumers limit their spending, business hold back on investment amid a currently very uncertain and worrying outlook, government spending and investment is pared, and muted global economic activity dampens exports.
‘Hopefully, the recession will be modest and short-lived although much will depend on events in the eurozone.
‘We expect the economy to stabilize towards the middle of the year and then achieve modest growth in the second half.’
Jamie Dannahauser, Lombard Street Research: ‘Whether the UK slips back into a technical recession is a moot point – what matters is the likely extent and duration of this weak patch and its implications for monetary policy. An announcement of more QE this quarter, probably £50 billion, to be announced in February is still our base case.’
Comments (22)
These very preliminary figures out less than amonth after the quarter ends tend to get considerably over-interpreted. Apart from the likelihood of revision, I did note that weak electricity and gas production, reflecting mild weather, was a significant negative contributor to these numbers. Would it really have been better economic news if this had not been the case??
19:42 on 25 January 2012
Who cares about technical definitions, we are in dire straits!
21:58 on 25 January 2012
Oh bollocks!! - Just more doom and gloom.
We're into it one minute then out, but hang on - we're going back in when it seems to me we've never been out!! (recession that is)
Do you follow me readers?
And all this from chancers who haven't a bloody clue - give us all a break and shut it!!
10:10 on 26 January 2012
We are up shit street, and no matter what anyone on this forum says, things can only get worse. Lack of consumer confidence = lack of demand, which in turn will heap pressure on the economy. What is needed is some kind of stimulus to demand otherwise we will have years of pain and misery.
18:30 on 26 January 2012
The debt racked up by western Govts and households will take years to work off. There is no easy solution. Those who have lived responsibly and within their means get screwed with pitifully low savings rates, and the profligate who have re- mortgaged again and again to purchase frivolity that they didn't need get protected with an artificially low bank rate.
Add to this the fact that the British economy seems to be driven forward by tanning parlours nail bars and tattoo studios full of single mums spending their tax credits. Cool Britannia ain't so cool anymore. Agree with Michael Brooks though I think the expression is shit creek.
19:04 on 26 January 2012
Mr Grumpy, Michael and Anthony,
How right you all are, the poor, you and me and the rest of the real world are getting poorer. The bankers ,hedge fund managers and the "clever buggers" are getting richer. Oh I think I will award myself another couple of million bonus brigade.
What they dont seem to understand is simple economics.
If we have all of our income eaten up in just actually living, we have not got expendible income to spend.
We currently have Expenditure exceeds Income , result, misery.
Until we have Income that exceeds Expenditure there is no way the economy can recover.
Welcome to the real world, we cannot borrow to buy as we will not have an income in the future, We have seen what borrow,borrow ,borrow does.
Where is that best chancellor we had, last seen hiding in Scotland I think.
Shit creek,no bloody paddle and the bloody bankers and the like,lighting their cigars aboard the luxury liner disappearing over the horizon.
Of course they are worth all the money they pay themselves.
09:09 on 28 January 2012
It's irrelevant whether we just avoid a technical recession or not. Stop making irrelevant headlines.
11:32 on 28 January 2012
Citywire is just the digital equivalent of a down market tabloid teasing the emotions of the readership. I just pop in from time to time for the fun it provides as members of the various troupes hoot and pant above the jungle floor in the canopy.
As regards real grass roots feedback I can report that business was up by 30% last financial year, with a strong January 2012 follow through. Sectors that were responsible for the financial calamity, a grossly overvalued property market, financial services, and industries feeding off the teats of the afforementioned industries will clearly not be recovering anytime soon. Businesses actually earning their national keep however, are continuing the fight back. A little less noise from clueless journalists might help build the nation's confidence once again.
11:57 on 28 January 2012
Well TruffleHunter
It would be interesting to know what line of business you are in !
Do you manufacture a tangible product ?
30% growth is impressive in 1 one year,is it an ongoing growth pattern,did you see similar growth the years before that ?
From nothing to up 30% in one year is a different story to an unexpected return in a single year.
Whilst I welcome a glimmer of hope on the horizon instead of the gloom and the liner vanishing in the mist, are you talking a multi million pound business or a genuine increase in a new business venture.
Please ,please, please, show us the way.
If you can spare us the time of course.
13:09 on 28 January 2012
Personally, I am waiting for the miraculously clever bankers and their Party to show us the way.
16:36 on 28 January 2012
Waiting for politicians of either party to help you create wealth is a dumb-ass strategy. That is why we have become a nation of welfare state benefit addicts who dare not stand on their own two feet.
17:15 on 28 January 2012
TryffleHunter
What is the point of voting, and having politicians if they have no impact on wealth creation?
17:50 on 28 January 2012
TruffleHunter,
I like the wording, particularly, "Wealth Creation" or create wealth, in my world its called hard work and dedication. good business sense and of course, Luck
Let me guess, you are an IFA or may be an RI or a AM in the wonderful financial mayhem.
I note you are unwilling to identify how your "Business" grew 30 % last year .
Come on ,come clean, let us in on the secret of your success, perhaps between us all on City Wire we can save the economy.
19:01 on 28 January 2012
What needs explaining about hunting truffles? The trouble is there aren't enough to go round.
19:30 on 28 January 2012
Angry P and Anon1
My business is connected with the "export" industry. We export or die as a nation now that the politically inspired bubbles have burst.
What is point of voting?! It is the method by which those who create wealth getted mugged by the so-called democratic system. If you vote for a politician because you think they create( or even help create) wealth then you are sadly misinformed individual. They are principally there to enforce the transfer of wealth from those that create it.
A free capitalist market would have allowed insolvent banks to fail. A free capitalist system is perfectly capable of pricing money and interest rates in the same way it makes a price, every day, without fail, for the stock, commodities and bonds. Politicians and their captive central banks have introduced more instability into the world than you can imagine.Their policies distort the true actions of the market economy. The problems we face today are the result of political meddling in the interest rate policy for mortgages. I have a copy of the New York Times(1999) that clearly illustrates the actions of Bill Clinton in sowing the seeds of the housing collapse. The previous UK government removed bank monitoring responsibilities from the B of E in 1997 and gave the useless FSA the job that they staffed with puppets. This exacerbated the property madness. A pyschophantic media did little to try and stop the mania; indeed, they were breathing the same fumes as the mis guided politicians.
Whilst writing this I have tried to remember one instance of the UK government actually starting any type of business apart from the manufacture of reams and reams of red tape to hinder business. The wealth of the USA and UK has be created by private companies and individuals.
19:49 on 28 January 2012
Trufflehunter
I can understand your concerns, I also run a small business in the hospitality/property sector, and have to contend with reams of paperwork and innumerable amounts of regulation.
Being a politician is no easy game. No matter what they do, they never get it right, and upset somebody.
Lack of regulation has brought us the housing bubble and recession, regulation on the other hand is seen as interference in capitalism and reams of paperwork.
The only people who seem capable of manipulating the system are the 1%, at a cost to businesses like yours and mine. Herein lies another problem, which eventually will have to burst.
As an economist, amongst other things, I can assure you that governments can influence the economy, and provide good management.
I often wonder whether the Chinese are not one up on us in this area of management? Cannot comment further. Have not been to China, nor studied their economics in any detail. But growth rates have been significant for many years.
20:50 on 28 January 2012
TruffleHunter
connected to ??? export !!!
What total rubbish, try talking in real english, not enspired terms.
Never has so much meanless nothing been spouted and saying even less.
What the hell has Bill Clinton done, other than not kept his dick in his pants.
By the way, sad you still have the copy of the 1999 New York Times
The changes to the finanacial management in 1999 gave free licence to free loaders and scoundrels ,who previously were members of the M L l A A
and the FSA was formed by the biggest rogues of all to "control " them.
But it still does not explain your claims of 30% growth in your "business"
As I said before Please ,show us all the way, we need a break and the economy could sure do with a boost.
21:14 on 28 January 2012
Angry Pensioner!!
Many of my customers are export focused and my company benefits from that. I have to be circumspect on a board such as this. I can do without a load of additional competitors!
The seeds of the financial crisis were sown in the late 1990's. The trouble is that meaningful snippets of news tend to get overlooked and forgotten over time - that is why I have a copy of an article from the NYT dated 1999. To make investment decisions it pays to make note of "Page 17" articles especially if they flag up a politician making a potential mistake that might take time to play out. Clinton forced Freddie Mac and Fannie Mae to accept lower quality loans onto their books; this meant that Wall Street banks could offload all the crap onto them!! Merril Lynch came up with the idea of securitizing all this crap and bribing the Ratings Agencies to put AAA grade on it. This wheeze led to the massive expansion of CDO's, CDO Squared, CDO cubed etc etc.
As regards pointing the way forward from an investment point of view I dont mind saying what areas I am researching in at the moment. The semiconductor space has been hammered down. RF MEMS, Gallium Arsenide, MOCVD plants and biotech stem cell research companies is where I see some potential 3 or 10 baggers over the next couple of years. However, if you are retired a lot of the stocks do not pay dividends. Do a Google on the above topics and see what comes up. I will be buying some of these stocks in the next month or two. They are mainly US companies although there is one UK company involved in making chemicals and materials for the flat panel screen market amongst other things.
With best wishes
Trufflehunter
23:09 on 28 January 2012
Anon 1
"Lack of regulation has brought us the housing bubble and recession, regulation on the other hand is seen as interference in capitalism and reams of paperwork"
The B of E used to keep a close eye on the banks's lending ratios, particularly those regarding the housing market. In decades past a bank CEO would have been discreetly called in to see the Governor of the B of E . If the Governor raised his eyebrows regarding the lending ratios the CEO would get the message and trim back lending. This oversight was removed that is why we had poor regulation. We dont need more lines of legislation from a bunch of useless politicians. The nation would be far better off we insisted that the number of wind bags in the Commons and Lords was reduced by atleast 50%. Politicians are the problem; not the solution to the nations problems.
23:19 on 28 January 2012
TruffleHunter
I am on late night duty tonight.
So am replying before going to bed
"Politicians are the problem; not the solution to the nations problems."
I think many of us, perhaps even 99% would agree with that, but that still brings us back to the fact that some regulation is necessary, even if it is on a raised eyebrows basis. We need rules and regulations to live by. Can you imagine a world with no rules and regulations?
So who is to arrange these rules and regulations, if not politicians? Imperfect though they have proved themselves to be.
01:21 on 29 January 2012
Anon 1: Late night duty squared!
"As an economist, amongst other things, I can assure you that governments can influence the economy, and provide good management"
It is the "provide good management" that I find hilarious. The problem is that becoming a politician is now a career choice. This means their focus is purely on getting re-elected ; not doing what is necessary to make and keep a strong economy. They pander to their focus groups rather than manage the country in a responsible manner. The hideous mismanagement of government borrowing and spending (before the financial crisis) in the past 10 years is criminal and should be regarded as such with severe consequences for the perpetrators.
You say we need rules and regs to live by. The more rules and regs there are the less inclined people are to pay attention to them. There are plenty of minor examples of this eg driving whilst on a mobile phone, with too much alcohol, the underground economy etc etc. A lot of this contempt for the law is brought about because of too much interference in peoples lives.
Why has the nation become a nation of zombies that need to told what is right? I started with nothing and built myself and my business into a strong position without need to break any law or be told what to do. In fact I have succeeded despite the roadblocks put in my way by a failed education system.
09:53 on 29 January 2012
TruffleHunter
I have a lot of sympathy with your views.
Please have a look at the Citywire discussion topic Planners from Hell-Have you a story to tell?
Some indication of management problems and roadblocks.
14:37 on 29 January 2012
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