Economic woes – “it never rains but it pours” – can be the only description of the world economy right now. The UK specifically is fully into its 3rd quarter of stagnation.
Yesterday the National Office of Statistics revised its growth for the 3 months to June down to 0.1%. Down 50% from its previous statistics. Confirming what everyone pretty much already knows (except George Osborne) that the UK economy is flat lining.
In addition IMF growth forecasts for 2011 have been downgraded to 1.1% from 2% 9 months ago, and for 2012 down to 1.6% from 2.3% and even this looks highly optimistic. The IMF is clearly opening the door for a squirming back track by the UK government to reduce its deficit reduction plan.
No growth = very little chance of cutting the deficit by the amount the chancellor would like. No growth means continual falling standards of living in the UK.
Today the Bank of England kept interest rates at 0.5%. Not unexpected, but even those on the right are now resisting calls to hike interest rates in the way they were calling for it a year ago. The opportunity has been missed they say.
In addition they have announced a further round of Quantitative Easing. The electronic version of printing money. This was not altogether surprising, as it has been signposted by Goerge Osborne over the past few days. However, the amount is far more than originally forecast, signalling that the financial crisis is still getting worse and not better.
The penny is beginning to drop for the coalition. Growth is becoming far harder to come by, and the cuts are only just beginning to bite. The chances of a double dip recession are massively increased with the continuing problems in the Euro Zone that does not look like ending any time soon. Yet, still no growth strategy except, cut and hope for the best.
I predict that sooner or later the UK government will HAVE to slow its deficit reduction plan, and a new banking crisis to ensue in the Euro zone leading to frozen liquidity in the world banking system. Watch this space!