U.K. Recession Official – Why the surprise?

23Jan09

Today Management Today promptly announced the news:

‘Britain’s economy shrank by 1.5% in the fourth quarter of last year, according to figures released this morning by the Office for National Statistics, a steeper drop than most analysts were expecting. It’s also the second consecutive quarter of decline, officially confirming what every man, woman and dog in the country already knows: that Britain is now in a very painful recession.

The 1.5% decline, which follows a 0.6% decline in the third quarter, was well below the 1.2% consensus forecast, showing that the economy is in even worse shape than everyone thought. But that doesn’t come as a great surprise – already this week we’ve seen unemployment leap to almost 2m, manufacturing confidence sink to a 50-year low, and sterling plummet to a 25-year low against the dollar.

Meanwhile British banks have lost further billions in value, despite the latest bailout, and economists have been queuing up to tell us how bad things are. The Treasury’s worst case scenario was for a 1.25% fall in GDP in 2009 after a slight recovery in the second half – but this now looks ludicrously optimistic…’

Three thoughts:
– The US entered the cycle 6 months before us, so I’ll be watching their economy for signs of recovery next year, before the U.K. feels any improvement.
– I believe the U.K. figures will continue to decline over the next 2 quarters, before we hit bottom.
– Signs of recovery may possibly be out of our reach for the next 18 months.

What do I base my opinions on:
– The cycles from previous recessions
– The Economists who are quoting, blogging and shaping the editorial output of our news broadcasters.
– Consumers are already talking about living through a recession that lasts more than a year.

It may well be an interesting but difficult period ahead, until mid 2010.

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