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Caution despite double-dip recovery

The UK bounced back from the longest double-dip recession since the 1950s in the third quarter, but celebrations were quickly brought to a halt as it became clear the recovery was driven by one-off factors.

Britain's 0.9% surge in growth was fuelled by the London Olympics and also came as the economy clawed back activity lost to the extra bank holiday for the Queen's Diamond Jubilee the previous quarter.

The underlying picture has remained fairly bleak as Bank of England Governor Sir Mervyn King said this week that the UK's recovery has been "noticeably" slower than most other countries.

The economy has seen a cumulative rise in output from the middle of 2009 of around 3.5% - this compares with 6% or more in many other countries, according to Sir Mervyn.

Britain suffered a particularly vicious recession, with gross domestic product (GDP) falling by around 6% from the peak in 2008 to the trough in 2009.

But this was no worse than the pain felt by other countries in the aftermath of the banking crisis, which sparked a global recession as economies were forced to bail out their banks and as lenders froze credit to households and businesses.

While economic forecasts by the Bank of England have often underestimated the strength of the economic woes, Sir Mervyn has repeatedly warned that there would be a "zig-zag" pattern of growth as the UK recovers, with quarters of negative output along the way.

In his Belfast speech this week, he said there were signs of a "gentle recovery", although he called on the Government to do more to restore confidence in the banking system and to implement reforms to boost investment and spending.

Consumers and firms have been hit hard by Chancellor George Osborne's austerity drive, coming at a time when Europe - the UK's largest trading partner - has been crippled by the eurozone debt crisis.

There have been increasing calls for the Government to consider a so-called "plan B" to focus on supporting growth as the economy struggles.

Olivier Blanchard, chief economist at the International Monetary Fund (IMF), waded into the debate by suggesting Mr Osborne should slow down his austerity cuts in the March budget, telling Radio 4's Today programme "we think this would be a good time to take stock".

Yet there are some signs of life in the economy, with employment remaining surprisingly resilient.

Figures this week showed almost 30 million adults were in a job in the quarter to last November, up by more than half a million on the previous year.

The figure, giving an employment rate of 71%, is the highest since records began in 1971.

Unemployment fell by 37,000 in the latest quarter to just under 2.5 million, the lowest since spring 2011.

The Treasury and Bank of England's Funding for Lending scheme is also starting to help boost the availability of credit, while the Bank stands ready to increase its 375 billion quantitative easing (QE) scheme to boost the economy if needed.

Sir Mervyn sought to assure his business audience earlier this week, saying: "Our economy is recovering, more slowly than we might wish, but we are moving in the right direction."

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