What is the current state in the UK economy?

ghijk

The title says it all.

Briefly, what's happening in the UK economy today? How is it performing?

Thanks

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recession

http://www.ons.gov.uk/ons/index.html

Stagnant.

Original post by Frenchous

recession

Might want to google the criteria for that first.

Thank you.

Original post by Aj12

Might want to google the criteria for that first.

"In economics, a recession is a business cycle contraction, a general slowdown in economic activity."

Maybe you should be the one googling the definition

Reply 7

TAPSmith

Original post by Frenchous

"In economics, a recession is a business cycle contraction, a general slowdown in economic activity."

Maybe you should be the one googling the definition

Actually the criteria for a recession is 2 quarters of negative GDP growth, therefore technically we are not in recession (and haven't been for quite a while) however we are suffering from stagnant growth figures (0.2% in this years 2nd quarter).

Reply 8

Frenchous

Original post by TAPSmith

It all depends where you take your definition from :dontknow:

Reply 9

TAPSmith

Original post by Frenchous

It all depends where you take your definition from :dontknow:

Actually this is quite hard to discover, it appears to be the definition proscribed by the ONS and the Bank of England, (as well as the NBER in America). However, it appears to be the most globally recognised ideal, although recent economists are beginning to challenge this.

Reply 10

crazycake93

Think of a baloon.

Then think of some stupid kid poking it with a needle.

That's what is currently happening.

In this analogy, the baloon is the Economy.

Reply 11

FSP

better than most of the developed world.

Hopefully the BOE will stop printing money, it didnt work in america and will not work in the UK.
The biggest risk to growth is inflation IMO

Reply 12

quattro94

Original post by FSP

better than most of the developed world.

Hopefully the BOE will stop printing money, it didnt work in america and will not work in the UK.
The biggest risk to growth is inflation IMO

The government prefers inflation since it will reduce the amount of money they owe. Its rather sneaky but since the debts aren't adjusted for inflation, the government can take advantage of this to cut the debt quickly. However if they do it too much, jobs go, family's don't spend and growth becomes recession.

Reply 13

FSP

Original post by quattro94

VAT Rise + QE2 = Major pain for consumer

Reply 14

quattro94

Original post by FSP

VAT Rise + QE2 = Major pain for consumer

yup, and with Europe and the US collapsing, not to mention the largest budget deficit and largest amount of sovereign debt ever, we can quite safely say that Gordon Brown and Obama's fiscal policies weren't the best....

Reply 15

yoyo462001

Original post by FSP

better than most of the developed world.

Hopefully the BOE will stop printing money, it didnt work in america and will not work in the UK.
The biggest risk to growth is inflation IMO

This is the common misconception of those who don't understand monetary policy. QE/M policy is neutral in the medium and long run, central banks are more than aware that it will not cause any real long term growth inherently but will cause inflation. However inflation is relatively under control, there are no indicators that it will be a problem for the next year or two. QE/M policy is there to smooth out the economy, it will cause growth in the short term. The Figure i saw was that QE1 had added ~1.5-2% growth to the economy since 2008. A too be honest this is a relatively cheap price seeing as the inflation caused was minimal and just the safety it provided would inevitably have boosted growth also. So really there isn't any good argument not to use QE again given this situation and given the the fact inflation isn't a bigger problem than the general macroeconomic outlook.

Reply 16

TheInvincibles14

At least it's not as bad as Greece'

yet

Reply 17

MagicNMedicine

Original post by quattro94

This is a logical explanation for why governments have in the past used inflation as a tool to reduce the real value of debt but it doesn't apply to the UK today because it doesn't work:

1. A quarter of government bonds, plus all state pensions, public sector pensions and repayments of PFI are index-linked to inflation - this is around 80% of the total state debt bill where the interest payments just go up in line with inflation.

2. The UK doesn't have a balanced budget, it has a budget deficit of about 8.8% of GDP, this is the current shortfall between tax receipts and spending and has to be covered by borrowing. When inflation is higher investors will want higher nominal interest rates on any new bonds the government issues, to cover for inflation, or they will want to buy index-linked bonds instead. If they buy non index-linked bonds then if the nominal interest rate goes up to cover for inflation now then it becomes even more of a problem if inflation drops in the future because the real interest rate on that debt then becomes higher, so the government gets 'locked in' to higher inflation and absorbing the other economic problems that come with it.

3. Currently we are in an environment where inflation has been largely driven by supply shocks (rising prices of commodities on the world markets, oil, gas, food etc) rather than wages - wages are quite flat and inflation is running ahead of them. So the government isn't getting the benefit of tax revenues rising in line with inflation because wages are flat, but it is having to index benefits, tax credits and pensions etc with inflation. George Osborne called this 'the wrong kind of inflation' a few months ago when he was explaining why borrowing was higher than forecast.

So the conspiracy theorists are wrong, the British government is not using inflation as a cynical strategy to reduce the real value of its debt, because it doesn't work in the UK at the moment.

Reply 18

MagicNMedicine

Original post by yoyo462001

QE/M policy is there to smooth out the economy, it will cause growth in the short term. The Figure i saw was that QE1 had added ~1.5-2% growth to the economy since 2008. A too be honest this is a relatively cheap price seeing as the inflation caused was minimal and just the safety it provided would inevitably have boosted growth also. So really there isn't any good argument not to use QE again given this situation and given the the fact inflation isn't a bigger problem than the general macroeconomic outlook.

Yes the estimates were that the last round of QE increased GDP by 1.5-2% like you say, at a cost of extra 0.75-1.5% of CPI inflation. That was with £200bn so a £75bn second round is not going to be 'debauching the currency' like some scare-stirrers like to make out.

Also this is why they are bringing in QE now, their inflation forecasts are that CPI is going to fall next year, underlying inflation is low - there is minimal wage growth and so that is not driving inflation it is just being driven by supply shocks and after this round of utility bill price rises those supply shocks look to be settling down. The BofE forecasts that in the next year there is about as much risk of being below the 2% target as above the 2% target so going for QE now makes sense.

Reply 19

FSP

Original post by yoyo462001

I fully understand Fiat Money . There are alot of arguments to oppose Printing money. Its day light robbery . You may think its a "cheap price" to pay, but the majority of hard working people do not

Inflation was low in late 2008 because people where cutting back on spending at VAT was Cut.Why talk about 2008 ? why not talk about 2011 when inflation is closer to 8% ? and 15% for students who have lower incomes

QE2 has led to the speculation bubbles in gold and price of oil . the UK imports most of its thing we need a strong pound.

Do you have any figures to suggest Printing Money has worked for anyone other than the banks ?
Good old mervy helping the City

(edited 12 years ago)