UK's Economy Shrinks Further
UK’s economy has actually shrunk
by 0.3% in the first quarter of
2012, as opposed to 0.2% announced by Office of National Statistics (ONS)
earlier this year. The primary reason behind the revision is the bigger
reduction in construction output by 4.8%.
In the last quarter of 2011 the
economy shrank by 0.3%, it has now shrunk in two consecutive quarters, in other words UK is officially in recession. The economy could potentially go
into another recession in the second quarter of 2012 and the Queen’s golden jubilee celebrations scheduled
in this period can potentially make matters worse.
Interestingly, many economies of
the Eurozone, which is currently going through a debt crisis and a looming fear
of Greece’s exit from the single currency, are not going through any recession
but UK, which is not a part of the Eurozone, has gone back into recession
again.
What now?
The government can further increase its spending. It has already
increased its expenditure by 1.6% on health and defense.
The Monetary Policy Committee of
the Bank of England can sanction
Quantitative Easing (QE), i.e. inject cash into the economy. It has given
£325bn under the QE program and more are expected. International financial
institutions such as IMF have also advised the government to give the economy
another boost through QE.
The interest rate has been lowered to a record 0.5% but IMF has
suggested further reduction in rates.
Continue with the austerity program --- get rid of the
budget deficit. This is very tricky
because austerity can lead to further recessions. There have been growing calls
from leading economists around the world calling on governments to focus on
growth when most European nations are driving towards reducing their
expenditures.
Your comments and feedback are highly appreciated
Sarfaraz A.K.
sarfaraz@when.com
Half Bridge Business News
