UK Recession To Be or Not To Be
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UK Recession To Be or Not To Be

UK Recession To Be or Not To Be


Trading Features / Strategies from Simon Denham of Capital Spreads.

US preliminary GDP for Q1 duly came in at plus 0.9% which rather makes a mockery of all that talk of recession over the past six months or so. Whilst the rise in energy and fall in house prices since the end of March will not have exactly helped things have not deteriorated quite enough in the Q2 (so far) to have pushed the number into negative territory. In fact the Durable Goods data a few days ago at plus 2.5% is giving a few economists cause for some optimism that if there is a slowdown then it will not be of the hard landing variety.

Of course many have been hoping that the US might see a V shaped growth curve with the economy bouncing sharply out of its current malaise. However that also looks unlikely with, as mentioned, housing still falling and inflation waiting in the wings to do its worst.

Today sees the never ending supply of data continuing with the Chicago Purchasing Managers report at 14.45 and the consumer confidence numbers at 15.00. Of the two the focus will probably be on consumer sentiment as the US economy is still heavily driven by personal spending intentions. We are currently running into the big car buying season and any indications that this will be better or worse than forecast will be leapt upon by the markets. Hearsay has it that ‘big beast’ car drivers have been deserting their SUV’s in droves in favour of smaller compact versions. The price of fuel in the States, whilst still very cheap by European standards, has increased by a much greater percentage and, due to the huge distances that the American’s frequently drive, has probably caused more pain over there than is has here. The surge into more efficient vehicles may well give car sales a volume (if not value) boost.


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All of this calls into question the growth numbers for the UK , on the one hand we have big headlines blaring out jobs lost here, redundancies there and on the other we can see that the official employment figures show ever greater numbers on the payroll. How many of these are government employees is debatable but the fact still remains that the UK is, officially, in about as full employment as it is possible to be. If this scenario continues then a hard landing for the British economy looks unlikely. Unfortunately looking across the globe we can see that unemployment is making a comeback. Spain , Italy , Ireland have all warned on recent job numbers. Last night, Japan (lest we forget, the worlds second biggest economy) recorded serious declines in Industrial Output and Consumer Spending for April and a rise in Unemployment up to 4%.

With the UK economy in such a precarious position at the moment falling employment numbers could well blow a hole a mile wide in Alistair Darling’s borrowing requirements. A job lost is employment tax revenue loss, income tax loss, NI ‘tax’ loss, VAT income loss and probably corporation tax loss and on the other side of the coin an increase in social welfare spending. UK growth has depended for many years now on the largesse of the party in power. The huge sums spent on the NHS, Education etc have (in the main) been swallowed up by salary increases and new jobs. That has given a continued decade long boost to the over UK economy. Unfortunately just as we need a public spending boost we find that the cupboard is now bare and that in all likelihood the exchequer will be reining in spending as the economy slows. Not a great recipe for the future.



The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.


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Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.

'UK Recession To Be or Not To Be' edited by SD, updated 30-May-08



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