What they say

Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School


Double Dip recession or not?

The double dip question has been with us since the end of 2010 and is now coming to the fore again. It would be headlines if the headlines were not in the way – thanks to the Murdoch empire!

We now have a far better perspective on the impact of the austerity and tax measures and we have some sight of whether the country can grow with austerity. The answer to the last question seems to be no; well, at least not yet.

Unemployment is stable which given public sector layoffs is one of the only bits of good news. With growth averaging 0% over the past two quarters and inflation north of 4% the condition of the economy cannot be called rosy. The trade deficit is not good and the weak pound is not helping as much as we would expect.

I think inflation from here will fall back more to 4% though gas and electricity prices will give another spike. It was no surprise to me that inflation fell last month. Commodity and oil prices have stabilized and the desperate competition for customers in many sectors is squeezing prices – and profits.

We are past the worst within the UK but despite my usual bullishness I cannot help feel that a double dip of sorts is likely.

Consumer demand remains fragile, consumers are feeling the squeeze and it is hitting spending.

Other factors precipitating a second dip are the weakness of the US economy which is an important trading partner and the chronic weakness of the periphery of the Eurozone. Even trade in the BRICs has softened. So a worldwide slowing will affect us.

The coalition can only play a long game with the UK recovery which means that they have to tolerate these weak quarters and even a second recession; I have suggested before that we may see a blip rather than a dip – three quarters of -0.05% would be a blip but the reality is that technically it’s a dip. I think that is the risk now. The next three quarters may very well be at about -0.05%. However, if the Eurozone solution turns into a credit and bond crash then all bets are off on ours and the US growth prospects. The Eurozone contagion will ripple around the planet, it is already happening in fact.

The final cause of a second dip will be a climate of self fulfilling prophecy and lack of confidence. Everyone becomes a little more cautious and – as a result – most indicators go the wrong way. That said, we must not overreact to in inflation – this is in many ways a good sign of energy in the economy. We need energy put into enterprise and exports – fast.

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