The government have been very, very lucky. They have avoided a third dip into recession by the skin of their teeth. There is nothing to celebrate over as the UK economy is not out of the woods yet. Without a change in the government’s tough austerity policies, the UK economy will be flirting with recession for years. The economy is still flat-lining and bouncing along bottom of recession. The global economy is slowing down, the Eurozone is in the process of a hard landing and UK domestic demand is in very poor shape. The outlook remains parlous.
UK policymaking has been working in opposite directions. While the Bank of England have been pressing down hard on the monetary accelerator, the government has jammed its foot hard down on the fiscal brake. What the UK economy has needed was four dimensional easing – easy rates, easy money, easy currency and easy fiscal policy. Budget cuts have neutralised a lot of the good work that the BOE have put in to get the recovery going again. It is no wonder that the economy is doing so badly. It is time for a u-turn in policy.
This message is already starting to sink in that the Eurozone must ditch austerity in favour of more pro-growth policies. This realisation is already beginning to surface in France, Spain, Italy and Portugal, with other countries likely to join the bandwagon as the EU gives its blessing to a change in austerity. Right now there is no alternative. Without a change in budget policy, the UK and the Eurozone will disappear down the sink-hole of even deeper recession
Q1 2013 Q4 2012 Q1 FORECAST
GDP AT MARKET PRICES
Pct change q/q 0.3 -0.3 0.1
Pct change y/y 0.6* 0.2 0.3
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