11/01/2013

Triple-dip recession threat for UK economy as GDP shrinks

If investors thought 2013 was the year the market might finally start to turn around, it's time to look for a plan b. Despite the MPC resisting further quantitative easing and keeping the lending base rate at 0.5%, the UK economy faces the very real threat of a triple-dip recession.

[caption id="attachment_33498" align="aligncenter" width="646"]A UK triple-dip recession could genuinely damage your savings A UK triple-dip recession could genuinely damage your savings[/caption]

The UK economy has already seen £375bn flooded into the market as part of the quantitative easing program. The MPC has decided, for the time being, that's quite enough, thank you.  That's despite fears of a triple-dip recession following figures from the final quarter of 2012.

The abatement of extra cash flowing onto the High Street will strike a chord across many sectors. Even worse news is that the Services Sector shrank in December, sounding even greater alarm bells.

Triple-dip recession more than just a threat


In many experts' opinions, it is the Service Sector that's staved off constant recession this last two years. However, with the sector contracting at the end of 2012, triple-dip recession is not just a threat, but a probability.

The CBI Business Group isn't panicking. Yet. In its summary of the latest decision from the Bank of England, however, it didn't completely rule out a change in monetary policy if things got tougher.

"The [UK] economy continues to send out mixed signals", a spokesperson for CBI stated. As such, no change in monetary policy is expected "for the next few months". That is unless there are damning signs that the UK is headed irreversibly towards a triple-dip recession.

Feckin' "negative growth"? GDP shrank, man!


We are only two months away from the fourth anniversary of the all-time base rate low of 0.5%, imposed in March 2009. All things being equal, it's certain the MPC won't adjust it between now and the end of this first quarter.

That milestone, if the Service Sector does not recover, could well be marked with aforementioned triple-dip recession. That's stone-wall guaranteed if this year's first quarter ends similarly to the last of 2012 - achieving negative growth.

The change in fortune in the UK GDP was quite astonishing in December. Autumn saw GDP rise 0.9%, firmly signalling the end of recession.  Hurrah!, thought we.

But by the end of December, that positive reversed (or achieved 'negative growth', as the politicians like to put it), ending down 0.2%. That's a swing in fortune of over a point. To say it was unexpected is something of an understatement.

If you want my advice, if you've got a stash of cash set aside, spend or invest it. While inflation remains so much higher than interest rates, the money you have in savings becomes worth less every single day.

I'll counteract that statement by stating that, with even the Service Sector in contraction, there may not be that much worth investing in. Certainly not in the UK. If you're looking for an offshore investment, however, it's true that writers perform better in sunnier climes...just sayin'!




Have Your Say:

  • Should the Bank of England flood more money into the UK economy to add buoyancy?

  • Or should we just ride the storm out and keep the cash in our coffers for more clement market conditions?


photo credit: @kenteegardin via Flickr under cc 2.0 (sharealike) license