Britain still at risk of recession

27 January 2010 8:15 am | By Tracey Scott

Yesterday’s figures of a 0.1 per cent growth rate from October to December are some way off Chancellor Alistair Darling’s target of a 1.5 per cent growth over the year, then as much as 3.5 per cent by 2012.

According to reports, experts are now warning of a further slump, sparking fears of a double dip recession and the Chancellor has also hinted that this may be on the cards.

In response to yesterday’s growth figures, which follow a period of economic contraction lasting six consecutive months, Darling said: “There’s a lot of uncertainty around the world, there is still I think more to be done in this country and of course there will be further bumps along the road you know be in no doubt about that.

“But I’m confident that as long as we stick to the path that we’ve set, that we don’t prematurely remove support from businesses, from families, pull the rug from their feet just at the time when they can see confidence returning, provided we stick to that course than I think we can be confident that we’re going to see recovery and through that back into growth.”

Caxton FX senior analyst Duncan Higgins says there are still “severe headwinds to be faced” before the UK is safely on the side of strong growth.

He says: “In response to the GDP news, the pound has tumbled from its highs. Although the UK is out of recession, the figure will be subject to change and there is little room left for a downward revision. Investors had priced in a stronger figure and so the markets have immediately reacted, with the pound currently down over a cent from its highs against both the euro and the US dollar.

Travelex head of the UK trading desk Mark Bolsom says a ‘double-dip’ recession is still a real fear as the Bank of England is forced to tighten fiscal policy. He says: “These figures are utterly intangible to the everyday UK consumer and business. Fiscal tightening is around the corner and we are expecting higher taxes and public spending cuts in order to tackle our ballooning deficit. So although we have officially exited recession, it is debateable how much this will have a positive impact on the everyday man.

“Many businesses still have to make redundancies and slash budgets as their recovery remains sluggish.We think that the chances of a double dip recession cannot be ruled out. Unfortunately, we forecast a bumpy couple of years for UK consumers and businesses.”

 

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