Wednesday, February 25, 2009

Boom & Bust officially re-instated

UK economy slide size confirmed

The UK economy shrank by 1.5% in the last three months of 2008, official figures have confirmed, unrevised from the initial estimate issued in January. But the data showed a 0.7% drop in the previous quarter, from the 0.6% fall previously reported. This confirms that the widely accepted definition of a recession - two consecutive quarters of negative economic growth - has been met. It is the first time the UK has entered recession since 1991.

Posted by jack c @ 10:28 AM (1192 views)
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8 thoughts on “Boom & Bust officially re-instated

  • If the UK economy shrank, but the amount of money stayed the same, which is has thus far, then you could expect inflation due to more money than goods. The fact that there has been no inflation is a reflection of collapsed demand as we get locked into the “perceived” individual benefit of saving. For all the talk of monetary deflation, we are not there yet.
    As the real economy shrinks, but the associated debt defaults are not allowed maintaining a relatively high money supply, a fragile temporary state supported only by money hoarding, then the underlying risk of problem inflation upon recovery grows and grows. I wonder if this is the situation the Japanese authorities came up against. Having dithered too long to force a consumption led recovery, they had no choice but to allow real deflation to match the supply of money to the shrunken economy, as the dangers of a resumption in inflation gradually became the worst of two evils.
    Gordon Brown seems incapable of realising that the structure of the UK, his grand experiment, has failed and cannot be restarted. The solution is as always, slash the public sector, lower taxes and allow defaults. Although we may feel that we are getting richer as house prices fall, nobody benefits from a shrinking economy.

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  • @stillthinking, what to do though? Buy a house, don’t buy a house, buy gold, try and find a hight interest account??

    I haven’t a clue! 😉

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  • Anybody who gives you advice is most likely propping up their own position. I am inclined to think that given the number of financiers who are desperate to maintain and increase the real value of their savings, most courses of escape action are probably in balance.
    If you are after a house and not just money then keep watching the prices. Houses have one great benefit which is they are extremely resistant to rapid price changes, so you can watch the approach of the bottom at your leisure.
    Actually, a shorter version would be “I don’t know”… I just didn’t really care for that right at the beginning. I have no money so I haven’t thought about it. How can you become richer if you are stuck inside an economy that is becoming poorer? Good question.

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  • Let’s not forget growth was 0.0% in Q/e June 08, which was obviously an ONS fudge if ever there was one, just to give the govt another 3 months before they had to admit we were in recession.

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  • No more boom and bust! Only bust.

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  • hpwatcher slightly disagree with stillthinking – rapid changes in the economy whether shrinking or growing (but particularly shrinking) upset the status quo and always produce opportunity for outsiders – ie people thinking differently. I would imagine if an outsider cannot improve their position during a period of rapid change it is unlikely to happen any other time.

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  • Stillthinking your ideas on Japan are interesting. I’ve heard people say they like a strong currency as an explanation as to why they remained in deflation but maybe it was they realised the alternative (which became worse and worse as people saved) .

    That being the case the Japanese might be likely to just sit this out ie – the Yen may remain safer than other currencies.

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  • stillthinking says:

    All they can do is print, which they already tried. Maybe there is another story behind the drunken finance minister. Usually the plan is intervention in the markets to drive down the yen. Maybe this time currency intervention is a banned no-no.

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