New recession looms for UK, as bad news piles up

The world's sixth largest economy is on the ropes. There are signs that Britain could be in for its worst ever period of financial hardship, which may be part of a large-scale shift in global wealth.

The economic news this week has been dismal for Britain – as it has been for much of the developed world. In a major speech at the Conservative Party conference on Wednesday, the Prime Minister conceded that the country was facing 'no normal recession'. A recent survey showed that only 8% of private company bosses think there will be any meaningful recovery in the next 12 months. And, according to one high-profile economist, known for correctly predicting the US sub-prime mortgage crisis in 2007, most Western economies, including Britain's, are already shrinking.

There are three big reasons for pessimism:

First, retailers are struggling. Big UK companies like Mothercare and clothing retailer Supergroup have confessed to falling profits. Even Britain's supermarket giants, previously immune to the wintery economic conditions, have been starting to falter. Tesco recorded sales results that some are calling the worst for 20 years. What does all this mean? Ordinary people in Britain, struggling with growing debt and shrinking incomes, are spending less. Low demand for goods and services will cripple the economy.

Second, the country's trading partners are failing. The EU, which is the destination for most UK exports, is in the grip of a devastating debt crisis. The USA, meanwhile, has problems of its own, with a dysfunctional political system and a stuttering economy.

Poor growth among UK trading partners means limited overseas demand for the expensive goods the UK produces, which in turn means less money going into the system.

Third, new figures from Britain's Office of National Statistics reveal that in the last quarter year, GDP has grown by a miserable 0.1% – worse than even pessimists were expecting. GDP figures for previous quarters have also been revised downwards. The picture that emerges is of an economy that has been stagnating for a year, and is teetering on the brink of a further decline.

Doom and gloom

Policy-makers are using every tool they can to try to drag Britain out of its terrible slump. The Bank of England has just announced that it will pump a further £75 billion into the economy in an effort to turn things around – a desperate measure, but one which keeps hopes alive that the much promised recovery will one day come.

But there is another view. This latest recession may be more than just another chapter in the long story of boom and bust. There are some economists who argue that this is the beginning of a long overdue global readjustment, as declining Western economies give way to the dynamic, rising powers of Brazil, India, China and the developing world.

You Decide

  1. Would a shift of economic power in the world be a good or a bad thing?
  2. In a long-term recession, how could people learn to get by with less?

Activities

  1. Do some research into a previous recession either in the UK or elsewhere. Write a short article explaining its effects and how it ended.
  2. What can governments do about recessions? What economic levers are available to pull countries out of a slump? Draw up a list of policy recommendations for the UK government.

Some People Say...

“Western countries are in terminal decline.”

What do you think?

Q & A

What exactly is a recession?
A recession happens when an economy (measured by GDP) shrinks for two consecutive quarter-year periods.
And why is it so scary if an economy shrinks by a couple of percent?
A shrinking economy plus a growing population means there's significantly less wealth to go round. Also – the distribution of wealth becomes more unfair. Richer people can insulate themselves from recession by investing cleverly, but poor and middle-class families suffer from unemployment, rising prices and vanishing savings.
What if the economy stops growing for good?
It would require a radical change in lifestyle. It might not all be bad though. In adversity, people band together, and often discover a new community spirit that helps them through tough times.

Word Watch

Retailers
Retail (i.e. shops) is one of the most important sectors of the UK economy, employing millions in Britain. If the retail sector struggles, it does real damage to the economy as a whole.
GDP
Gross Domestic Product, a measure of the total value of goods and services produced in an economy.
Office of National Statistics
The body responsible for producing official figures in the UK.

Subjects

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