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Monday, February 20, 2012

UK economy recession 2012

UK economy recession 2012 : One prediction that economists and many other people are desperately trying to make at the moment is whether the UK economy will fall back into recession in the first quarter of 2012. This comes after the economy shrank by 0.2 per cent in the last three months of 2011. The Bank of England clearly still has concerns about the economic outlook as it announced on February 9 that it will be pumping another £50bn into the economy.

The Bank highlighted tight credit conditions and fiscal consolidation as headwinds to a stronger recovery in justifying why it is undertaking a further round of quantitative easing (QE). We have stated our scepticism about the benefits of QE befor

As usual, economic indicators are giving mixed signals. The Markit/CIPS services purchasing managers’ index reached a 10 month high of 56 in January, up from 54 in December, where anything above 50 represents expansion. BDO’s Output Index, however, fell from 91.4 in December to 91.2 in January, where 95 marks growth. The Chartered Institute of Personnel and Development adds that employment prospects are likely to become more difficult in the short term.

Our best guess is for the UK economy to undergo a period of slow growth as the process of deleveraging continues. Individual company prospects are still good, however, as many have strong balance sheets and are therefore well positioned to withstand the current economic environment. Growth rates for many companies with international markets may slow in 2012 but prospects will still be positive because of demand from emerging markets.
The UK economy will enter recession in the first half of the year as households continue to cut back, an influential think tank has warned.

The National Institute of Economic and Social Research (Niesr) said the government should temporarily ease its spending cuts to promote growth.

It expects the economy to shrink 0.1% in 2012, but to grow 2.3% in 2013 if the eurozone debt crisis is resolved.

Niesr said, however, that deficit cuts had bolstered market confidence.

The UK is already close to another recession - defined as two consecutive quarters of economic contraction - after official figures in January showed that the economy shrank by 0.2% in the final three months of 2011.

In its UK and World Economy Forecast Niesr said: "We forecast a return to technical recession in the first half of this year, as households continue to retrench, credit conditions remain tight, and businesses are reluctant to invest given uncertainty about both domestic and foreign demand."

Niesr said economic conditions will not improve in the short term, as both the private the public sectors are still focused on paying off debts. "Over the near term we do not expect economic conditions to improve," the report said.

The think tank predicted that inflation would fall sharply, with the consumer price index down to 2.2% this year and 1.4% in 2013.

But there were grim forecasts on unemployment, which Niesr expects will rise to about 9% this year, from 8.4% in the three months to November, and will remain above 7% in 2014.

"Unemployment at this elevated level for such a long period is likely to do permanent damage to the supply side of the economy, with large long-run economic costs," the report said.

Niesr suggests relaxing the government's austerity programme. "The UK economy currently suffers from deficient demand; the current stance of fiscal policy is contributing to this deficiency. A temporary easing of fiscal policy in the near term would boost the economy," the group said. For the latest updates PRESS CTR + D or visit Stock Market news Today

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