Recession Looms For Britain And Europe
Both Britain and Europe are facing recession as Bank of England Governor and European economists warn of difficult times ahead. Projections are now for economies to shrink and many in the Euro zone are already doing so.
The Bank of England has warned that Britain is on the brink of recession. It was the gloomiest statement yet by the Bank, and it was followed by news that Europe’s economy is also shrinking – for the first time in ten years. Recession is officially defined as two consecutive quarters of economic decline
On Wednesday Bank Governor Mervyn King forecast that the UK economy would shrink, and households would face an “extremely difficult” year. He also said that Britain was facing the worst financial crisis “since the second World War”. Disposable income would shrink, he said, as the growing tax burden took large bites of out wages.
Mr King’s comments came after inflation rose to 4.4% and unemployment went up by 60,000 to 1.67million. Strong employment figures have been the backbone of upbeat comments about the UK economy for the past 12 months. Now unemployment is starting to rise, the outlook is bleak.
Mr King’s comments left Chancellor Alistair Darling looking exposed, as his projections are still for strong economic growth this year and he next.
In Europe, the 15 economies of the Euro zone shrank 0.2% overall, the first fall since 1995. The 27 nations of the EU, including Britain, saw GDP go down by 0.1%. The biggest blow was suffered by Germany, down 0.5% in the three months to June, bringing the country to the brink of its own recession. France and Italy saw their GDP shrink by 0.3%.
As the Euro zone is Britain’s biggest trading partner, the Euro figures only bring the threat of UK recession closer. One small positive is that the slowdown in the West takes pressure off oil prices.
The downturn in Europe was triggered by a decline in consumer spending and exports. European economists were pessimistic that it be over quickly.
Further bad news for Britain is the state of the Pound, which has fallen badly against the Euro, and has meant inflation has risen quicker than in the rest of Europe.
