NationStates Jolt Archive

The economy shrank for the first time in 16 years between July and September, confirming that the UK is on the brink of recession.

Output fell by 0.5%, according to the Office for National Statistics, a bigger-than-expected drop, knocking UK shares and weakening the pound.

The UK will be classed as being in recession if the economy slows in the fourth quarter as well.

The Chancellor voiced confidence the UK would "get through" the slowdown.

"It will be a difficult period, but I am absolutely confident we will get through it, " Alistair Darling said in an interview with the BBC.


Alistair Darling says he's confident 'we'll get through this'
"We want to help people get through this period, putting more money in their pockets," he said, adding that the UK needs to work with other countries to make sure these efforts are replicated around the world.

He blamed the fall in UK output on the credit crunch, falling house prices and rising energy prices, which have forced consumers to tighten their belts.

Charlie Bean, deputy governor of the Bank of England's rate-setting committee, the MPC, described it as a "once in a lifetime crisis and possibly the largest financial crisis of its kind in human history".

UK shares tumbled further on the news, down 7% in early afternoon trade.

The pound was also affected, falling to $1.5889 - the first time it has fallen below $1.60 in the past five years.

Shock fall

The 0.5% fall in economic output is far greater than predicted and increases expectations of further interest rate cuts from the current level of 4.5% to ignite growth.


What's the real impact of the economic slowdown? BBC News is taking the temperature across the UK in a special day of coverage


Special report: The downturn

It is the biggest drop in UK gross domestic product (GDP) since the first quarter of 1990.

GDP was 0.3% higher compared with the same period last year, the weakest rate of growth since the second quarter of 1992.

The services sector - which represents three quarters of the UK economy - fell 0.4%, the biggest drop in 18 years. Within the services sector, hotels and restaurants saw the biggest fall, down 1.7%, compared with an increase of 0.2% in the previous quarter.

Manufacturing output fell 1% while construction tumbled 0.8% compared to the previous quarter.

Market fear

This is the day that the recession became real

David Cameron MP, Conservative leader


More downturn reaction

Analysts expressed their shock at the news and their desire for aggressive rate cuts.

Business group CBI said the figures were worse than expected and called for a 0.5 percentage cut in rates at the next meeting of the MPC.

"My comment to traders is dive, dive, dive," said Societe Generale's Brian Hilliard.

"It is a very emphatic entry into recession which underlines the need for dramatic rate cuts, which we think the Bank of England will deliver." He anticipated rates dropping to 2.5% by the middle of next year.

Rates could go as low as 3% by the middle of next year and possibly even lower, said UBS analyst Amit Kara. "The risks are that this is going to be a pretty severe recession."

Return to 1990s?

BBC economics editor Hugh Pym says the figures raise fears we could be in for a recession very like the one in the early 1990s when unemployment hit three million.

He says it is unlikely to be just a technical recession (two consecutive quarters of negative growth), but could be a year or so of negative growth.

But the difference is now that interest rates are much lower, he says.

Deputy bank governor Charlie Bean told the Scarborough Evening News that the bank's independence - and ability to set monetary policy - meant that the UK was in a better position than in the early 1990s.

Hard rain

DEFINING A RECESSION
A recession is widely accepted as a decline in a country's domestic economic output or GDP for at least two consecutive quarters


The layman's finance crisis glossary
Q&A: What is a recession?

Opposition politicians criticised the government for its handling of the financial crisis.

"Well, this is the day that the recession became real. We've had 10 years of being told no more boom and bust, 10 years of a government not putting aside money for a rainy day. Well that rainy day has now come," he said, calling for more support for businesses," David Cameron, the leader of the Conservatives, said.

The Liberal Democrats called for tax cuts for the poor and more interest rate cuts.

"These growth figures show that the credit crunch is hitting the real economy and harder and faster than was first feared," said Liberal Democrat leader Nick Clegg.



So we are now officially on the brink of recession which analysts have been predicting for a while. So how long do you think it will last, how will it affect you and just how bad is it going to get?

If we're screwed, we're screwed. I'm gonna try to hold on to my fun for as long as I can.

bah it will be about 2 years of me being poorer than usual. adapt and overcome etc

not being able to afford as much alcohol = reduced alcohol tolerance = getting smashed on less money = no change

I'm gonna try to hold on to my fun for as long as I can.

*steals all the presents from Whoville*

If the BBC shuts up, it'll be gone really soon. The way things are, they'll make it worse and then hold it down.

I shouldn't worry too much. Not yet anyway.

I doubt this will be anything like recessions of past. I say this because Inflation is on its way down, pretty darn sharp too. Its due a drop. This means the Bank of England, have the freedom to play with the interest rates, and lower them. This will hopefully kick start the economy, at the expense of having a temporary weaker pound.

(This is the impression I got off of BBC news this morning anyway.)

EDIT.

After reading the detailed news story, rather than skimming it briefly, this is kinda confirmed.

If the BBC shuts up, it'll be gone really soon. The way things are, they'll make it worse and then hold it down.

Because everyone knows information is the enemy?

If the BBC shuts up, it'll be gone really soon. The way things are, they'll make it worse and then hold it down.

I don't think the BBC really has much control over the global financial state. This issue is a lot more complicated than media frenzy. An economic slowdown started when some banks realised they couldn't continue to operate. This led to less consumer confidence within the market, leading to less sales and demand, leading to cut in production, leading to job losses, leading to this brink.

3 or so years and things'll be sorted - luckily for me, I'm in Hull, so nothing much is going to change.

I don't think this crisis would be so hard for average citizens...at least in Europe.

The money destroyed in this process is "ghost funds", money who never really existed, created on mortgage of debts...

I hope that the City won't be struck too hard...but every country who have an overloaded banking structure will take the punch harder, I think.

An about a recession...bah...we can't expand indefinitly our economy with a single world, so...not such a bad thing.

I'm far more pessimist about the lessons people will get of all this.

I'm so astonished to see that, suddently, every European government can throw away hundreds of billions of euros to banks, when just six months ago all our politicians were saying that we must cut our expenses...

3 or so years and things'll be sorted - luckily for me, I'm in Hull, so nothing much is going to change.

wait till they put the price of pork scratchings up :p

I'm so astonished to see that, suddently, every European government can throw away hundreds of billions of euros to banks, when just six months ago all our politicians were saying that we must cut our expenses...

recessions are pricey

Don't Panic! :eek: (http://katyregnier.com/blog/don_t_panic_button.jpg)

Meh, my state has been in a recession since 2001 so I have no sympathy.

wait till they put the price of pork scratchings up :p
I cook just about everything anyone eats in the house :p

My only worry is that snakebite will reach and then exceed the £2 barrier, meaning having to get out a second tenner to get truly pissed on Kareoke Thursdays (leading to après-chant kebabs on the way home).

I live in Mississippi and we've been in a recession since 1865 so this doesn't change how we operate all that much.

Well, just for quoting something I have under my hand, just there in France, the government is going to spend more than 55 times the sum we were supposed to save by suppressing 48 000 places in public services...

In a single day, we have thrown 10,6 billions euros to our 6 major banks, even if none of them is really crippled by the crisis, just to improve their liquidities...and don't even get a participation on them in exchange...

10,6 billions, it's more than half of the debts of our healthcare service, that Mr. Sarkozy said we can't save in their current state because we haven't money for that...

I just wonder if people will remember of this in a year of two...

3 or so years and things'll be sorted - luckily for me, I'm in Hull, so nothing much is going to change.

Yes but you live in *Hull*, I don't think you can be described as lucky by any criteria :p

Yes but you live in *Hull*, I don't think you can be described as lucky by any criteria :p
Pfft, it's not as bad as all that!

At least it has 3 bars worth going to, which is roughly 50% more than York :tongue:

Earlier in the year, people were debating whether to call the economic downturn we were in a recession. At that time, I suggested to people I've talked to about it that we were in a panic (http://en.wikipedia.org/wiki/Financial_crisis). I even referred to it as the "Panic of 2008."

Months later, I plugged in the term in Google on a whim. Lo and behold, I see some economists have actually called it that.

What's funny to both me and Pacitalia was that a RP I created and he was heavily involved with in which I RP'd Sarzonia as having an economic panic essentially presaged the RL economic crisis. Replace Sarzonia's shipbuilding industry's irresponsible bidding practice with the U.S. mortgage industry's sub-prime loans row and many of the same things happened in both.

Tighten your belts everyone. It'll be a bumpy ride for a couple of years.

Subtract 10-20% from the GDP. That's the average after a banking crisis/intervention.

Of course the crisis isn't over yet.

3 or so years and things'll be sorted - luckily for me, I'm in Hull, so nothing much is going to change.

It did get worse. They just announced plans to forcefully move all unemployed yobs in London to Hull and give free housing. your population is about to double but be entirely composed of unemployed dirt bags.

Subtract 10-20% from the GDP. That's the average after a banking crisis/intervention.

Of course the crisis isn't over yet.

We didn't lose 10-20% in '87, though, not by a long shot. I highly doubt we'll see much worse than the 1981 recession, although with any luck it'll end up more like 1991.

We didn't lose 10-20% in '87, though, not by a long shot. I highly doubt we'll see much worse than the 1981 recession, although with any luck it'll end up more like 1991.

87 wasn't a banking failure thing. Yah, bad for equities and the exchanges were on the point of failure, but the underlying economy was fine and credit markets functioned pretty much uninterrupted.

This is more a systemic banking crisis. Had it not been for many epic interventions across the globe since July-ish, a fair number of large international banks would have failed.

So I am basing my estimate on situations in the past where there have been similar systemic failures, like Sweden.

It's not cast in stone, just sort of where I see things landing. But I think expecting something like 1-4 quarters of -2% growth is unrealistic.

Edit: And re 91. That was S&Ls really. But back then everyone knew where the problem was, so it didn't really spread into the wider economy. S&Ls didn't effect the ability of IBM to finance (or not much). This is not the case now. It is significantly worse.

You have to remember that 3/6 mos paper is still not moving, (AXP was given 18% on six months today), that sort of thing is very bad for the economy.

The one bright spot is that the US imports so much. So we'll get a little bit of import substitution, and since so much of the discretionary stuffs comes from overseas, a lot of the layoffs are their problem.

Yeah, it's going to be pretty bad. On the plus side, houses should become more affordable in the UK as the bubble bursts.

Pity that few people will be able to get a loan at reasonable rates for a while to actually take advantage.

Yeah, it's going to be pretty bad. On the plus side, houses should become more affordable in the UK as the bubble bursts.

Pity that few people will be able to get a loan at reasonable rates for a while to actually take advantage.

I think it all depends upon how China deals with it. Last year I was agnostic about decoupling, but I think it's pretty clear now that it hasn't happened.

But if China collapses, then there really are no bright spots. On the other hand, if they can keep floating and maybe start to ramp domestic consumption, then not everything looks completely grim.

Right now though, international trade is circling the drain. Very bad.

Right now though, international trade is circling the drain. Very bad.
Freaky banks and their letters of credit. Maybe there should be specialised companies who do just that and don't get into trouble until godzilla destroys half the world's shipping in a week.

Yeah, someone should look into that before things get all 1932.

Scary times. I've converted some of my dollars into guns and krugerrands, hope that will help a little.

I'm lucky that my job depends on grant money that has already been awarded so I'm good at least until I finish a PhD... and then I get to hope that the academic world isn't affected by this business, at least as far as hiring post docs goes anyways.

well all of your contris are proably experincing this because the u.s.a is going into a recession like in the grate depression our countries are interdependant

Yes but you live in *Hull*, I don't think you can be described as lucky by any criteria :p

No one lives in Hull. Exists, maybe.








:p

I don't know about anyone else, but I think this is the best recession ever!

Scary times. I've converted some of my dollars into guns and krugerrands, hope that will help a little.

If all goes to hell you can still shoot the poor.
Relieves an unbelievable amount of stress.

If all goes to hell you can still shoot the poor.
Relieves an unbelievable amount of stress.

If all goes to hell, you'll be the poor, dummy.

I suppose that releases your stress... in a chunky red fountain across the window...

If all goes to hell, you'll be the poor, dummy.

I suppose that releases your stress... in a chunky red fountain across the window...

You'll still be rich. In the currency of superior firepower.

You'll still be rich. In the currency of superior firepower.

And poor, in the currencies of both currency, and remaining non-Rorshache-interpretative-cranium.