Hurrah – the Recession has ended (or not…)

So like the media were intent on ramping up that the recession was coming many months before we saw it they are now saying it really has finished although we haven’t seen that yet. Here’s a run down on where we are.

I thought I would surf around to see where we really are with the economy in the UK to see if I could draw on the research to see where we might be with perhaps ending the recession and perhaps draw some conclusions.

Some facts first.

• According to GDP figures and the traditional measure of a recession (2 months negative growth) – we are still in a recession
• However, Germany, France and Japan have seen positive GDP growth recently so they are officially out of a recession
• Unemployment continues to rise globally
• Special financial measures are to end shortly such as the VAT reduction and the car scrappage scheme
• The banks are still not lending freely and interest rates for loans are slowly starting to increase
• Interest rates are flat at an all time low and the LIBOR inter-bank lending rate is still reducing

Where does this leave us ?

The trouble with this recession unlike those in the 80s and 90s is that this time almost all countries without fail have borrowed heavily in an attempt to spend their way out of it.

So it seems like a bit of a false dawn because although GDP is starting to turn positive all that money has either come from a) government borrowing or b) the bank of England’s “quantitive easing” and that’s not real money.

The UK is now saddled with heavy debt and not much seems to have yet changed with the current government’s spending and although some behind the scenes reductions are occurring without being reported (such as laying off consultants, not recruiting leavers or retirees and projects being delayed) that’s small fry to perhaps what needs to occur.

And with the heavy debt mountain also comes a massive reduction in government receipts:

• Lower VAT due to the rate reducing to 15% from 17.5% and lower sales from businesses
• Lower corporation taxes due to lower business sales
• Lower income tax and national insurance due to less people being employed

And higher government spending on social factors such as unemployment benefits and tax credits will be required and more people lose their jobs.

So in reality where are we?

It would seem that although GDP is improving the worst is still yet to come. Unemployment always lags behind any positive economic data and trends upwards months (and sometimes years) after a recession has officially come to an end so that is yet to come.

So we will probably have the following scenario in the coming years:

• Much higher taxes in an attempt to service the increasing debt because of unemployment and the general debt burden in any case
• Deep cuts in public spending because it simply can’t continue as it is and all political parties have agreed on this
• Perhaps stagnant growth

I was watching a program on the BBC last week about the recession/ depression of the 1930s and the scenario was almost the same as now. The banks had lent cheap money to those who could never pay it back and strict banking guidelines were put in place which unfortunately were quietly softened over the past 10 years.

The 1930s depression took many, many years to work its way through with high unemployment and although I don’t think that’s going to happen this time I do believe we have false hope at the present time and although the worst is not yet to come we are certainly not through this year and have a bumping ride over the coming years.

Is the recession over? Technically yes – but with the threat of a “double dip” recession looming I would not celebrate yet.

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