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U.k. Recession May Be ‘bottoming Out’

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U.K. Recession May Be ‘Bottoming Out’

Bank of England policy maker Andrew Sentance said the U.K. recession may be “bottoming out,†setting the scene for a recovery as soon as this year.

“The very big policy stimulus that has been provided by fiscal and monetary authorities around the world should now be beginning to be felt,†he said in a speech in Aberdeen, Scotland yesterday. “We should be able to look forward to a recovery beginning either later this year or early 2010.â€

The central bank left the key interest rate at a record low of 0.5 percent this month and is printing 125 billion pounds ($204 billion) of money to buy bonds and spur economic growth. Data yesterday showed manufacturing rose for a second month in April, prompting the National Institute of Economic and Social Research to estimate the recession reached a trough in March with economic output growing in the following two months.

“It is encouraging that in recent months we have seen some promising signs that the recession -- here in the U.K. and globally -- may now be bottoming out,†Sentance said. “The big shocks to global consumer and business confidence which we saw last autumn are now beginning to wear out.â€

The prospect of a recovery is a boost for Gordon Brown, who last week fought off the biggest threat to his leadership since he became prime minister in 2007 after six ministers quit. His Labour Party trails the opposition Conservatives with a general election due within a year.

In April, economists accused Chancellor the Exchequer of Alistair Darling of being too optimistic when he predicted the U.K. economy will start growing again by the end of the year.

Pound Advances

The pound advanced against the dollar for a fourth day on optimism the worst of the slump is over. It was 0.7 percent higher at $1.6470 as of 10:12 a.m. in London.

Niesr said the U.K. economy shrank 0.9 percent in the three months through May, down from a 1.5 percent pace in the period through April and 1.9 percent through March, which was the worst calendar quarter since 1979.

“I had expected it to be more downward momentum,†said Martin Weale, director of the NIESR said in a Bloomberg Television interview yesterday. “It seems very possible that†the U.K. “will show 0 percent growth in the second quarter. I certainly didn’t expect that six weeks ago,†he said.

U.K. consumers’ expectations for store prices in the next year increased in May for the first time in three quarters, a survey for the Bank of England showed today. That may reassure officials that deflation won’t take hold as a result of the economic slump.

Budget Deficits

The U.K. still faces “very large†budget deficits of 12 percent of gross domestic product in the current and coming fiscal years, Sentance said, citing Treasury forecasts.

“Fiscal consolidation will require restraint on the growth of public spending,†he said. “Tight fiscal policies are likely to need to be sustained for five to 10 years.â€

The recovery will require the economy to rebalance toward manufacturing and away from banking, Sentance said. A weaker pound relative to the currencies of export markets will help the process, and give producers a competitive advantage.

Consumer spending and financial services “are likely to be much weaker sources of growth,†he said “Other internationally trading sectors will need to pick up the baton from financial services - notably manufacturing industry.â€

Bank Lending

The return to economic growth will be subdued as banks restrain lending while they rebuild reserves, Sentance said. Their reluctance to lend more is “sensible†given the losses already incurred from strains in credit markets, and the risk of more to come, he said.

Banks “are likely to be much more cautious about future lending in the wake of significant losses arising from the financial crisis,†he said. “These losses have weakened their capital base and there are worries that further losses may emerge as a result of the recession.â€

Britons should prepare themselves for higher unemployment as the economy shifts away from finance, he said.

The process “is not smooth and painless,†he said. “We should therefore brace ourselves for a period when unemployment is probably higher than its natural or normal level for a while,†he said.

Let's all get it clear here, this 'recovereh' has is no more than the government ramming £125 billion worth of QE into an already bankrupt system. How the heck does that equate to a healthy long term economic recovereh? Friggin noodle headed, short sighted bankers.

Just look to Japan, they did EXACTLY the same thing and have never recovered.

Like I have said many times before... our children and grand-children will curse this generation for ruining their chance at pre-millennium prosperity.

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Its not this generation that is entirely to blame, lets get that straight right away. Its the 50-60 somethings that cashed in on hpi and left this generation of people struggling to either survive on the property market or priced out, while the golden oldies worry about their low interest rates on their £700,000 saving account, while they have cleared off abroad or downsized at home.

Chiang Rai & Chiang Mai, in Northern Thailand have tons of gated ex-pat communities, where the golden oldies top up their tans while watch "Star Movies" and BBC World. Its such a hard life for them, they actually have to walk a whole mile to get to the Rimping Supermarket to get such Nescafe.

Meanwhile back in the UK, those who bought into the HPI are wondering what the hell happened to all the money. :P

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Oh good, then we can return to double digit annual HPI and start the process of sustaining our economy on the back of rising prices again. Thank goodness for that. For a while I feared the country might have to start doing something productive again.

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Yep I want my £1.38bn house.

Would you like some QE fries with that?

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Does look like Alistair Darling will be have to announce in the autumn pre-budget report that his forecasts for growth and the public finances were far too pessimistic.

This is good news for all bar the Tip Top Toff Leader of the Tory Party & those on here with a vested interest in economic meltdown.

Edited by Flash Gordon

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Does look like Alistair Darling will be have to announce in the autumn pre-budget report that his forecasts for growth and the public finances were far too pessimistic.

This is good news for all bar the Tip Top Toff Leader of the Tory Party & those on here with a vested interest in economic meltdown.

Anyone would think there's a general election due.

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Anyone would think there's a general election due.

And your point is what the figures are forged?

It really is telling how a modicum of good news results in the gnashing of teeth by some!

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And your point is what the figures are forged?

It really is telling how a modicum of good news results in the gnashing of teeth by some!

No, the point is the 'recovery' is the result of an injection of billions of non-existent money that someone, sometime will have to work very hard to make.

Hope that's clear enough for you.

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No, the point is the 'recovery' is the result of an injection of billions of non-existent money that someone, sometime will have to work very hard to make.

Hope that's clear enough for you.

Yes, odd how you can treat the symptoms of the disappearance of billions of non-existent money with the injection of billions of non-existent money isn't it.

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No, the point is the 'recovery' is the result of an injection of billions of non-existent money that someone, sometime will have to work very hard to make.

Hope that's clear enough for you.

It's called a fiscal stimulus and yes in the fullness of time taxes will have to be raised, the alternative would be a downward spiral and far far more costly in real terms.

And as for QE you do realise this will be in due time reversed?

Still can hear from here the gnashing of teeth as economic meltdown looks like it's been avoided.

Edited by Flash Gordon

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It's called a fiscal stimulus and yes in the fullness of time taxes will have to be raised, the alternative would be a downward spiral and far far more costly in real terms.

And as for QE you do realise this will be in due time reversed?

Another term would be 'buying a few more months for Gordon Brown at the expense of our children and grandchildren'.

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It's called a fiscal stimulus and yes in the fullness of time taxes will have to be raised, the alternative would be a downward spiral and far far more costly in real terms.

And as for QE you do realise this will be in due time reversed?

Still can hear from here the gnashing of teeth as economic meltdown looks like it's been avoided.

No, it means printing more that will never be repaid. By "stimulus" they mean inflation and inflation doesn't happen if there is any chance of the debt being paid back.

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No, it means printing more that will never be repaid. By "stimulus" they mean inflation and inflation doesn't happen if there is any chance of the debt being paid back.

How many years post 1945 has the UK had zero or negative inflation?

Inflation, at a low level acts as a lubricant to the economy you do understand that don't you?

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How many years post 1945 has the UK had zero or negative inflation?

Inflation, at a low level acts as a lubricant to the economy you do understand that don't you?

no, it gives a lie to the true state of wellbeing of the economy. it creates a feeling of growth...more cash in the pocket is good.

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How many years post 1945 has the UK had zero or negative inflation?

Inflation, at a low level acts as a lubricant to the economy you do understand that don't you?

I don't understand TBH.

Perhaps you could explain.

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This recession like any other recession will sort the wheat from the chaff, it is a case of the survival of the fittest...we all sometimes need to step down a notch or two, reevaluate and regenerate. ;)

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Its not this generation that is entirely to blame, lets get that straight right away. Its the 50-60 somethings that cashed in on hpi and left this generation of people struggling to either survive on the property market or priced out, while the golden oldies worry about their low interest rates on their £700,000 saving account, while they have cleared off abroad or downsized at home.

Chiang Rai & Chiang Mai, in Northern Thailand have tons of gated ex-pat communities, where the golden oldies top up their tans while watch "Star Movies" and BBC World. Its such a hard life for them, they actually have to walk a whole mile to get to the Rimping Supermarket to get such Nescafe.

Meanwhile back in the UK, those who bought into the HPI are wondering what the hell happened to all the money. :P

It was just an illusion.

http://www.youtube.com/watch?v=PcwPWpXQG_U...feature=related

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