Business & Finance

The Recession Continues

October 23rd, 2009
Author: Richard Henley Davis

The growth projections were just wishful thinking, £175bn in liquidity was not enough to put the brakes on the economy as it heads downhill. So will there be a continuation of the quantitative easing over the next couple of months/years?

According to the Office For National Statistics our Gross Domestic output has shrunk by 0.4%  which I am sure will be reflected on the FTSE for a few days. This is now the longest recession for the UK since records began and will also smash confidence in the city and business in general. It appears since my last article on the recession that the service sector had not performed as well as was predicted by economists with hotels being hit hard making me believe that once the quantitative easing ends (if it ends)  the service sector will crumble and the only hope for tourism and hotels will be a devalued pound.

It all comes down to one stark reality and that is the growth that was anticipated in the economy is only underpinned by stimulus and not by and real production which has fizzled out over the past 25 years as we have swapped industrial output for a service based economy.

This leaves us with a very definite deflationary scenario and could result in a more aggressive approach to stimulus which goes beyond quantitative easing but caution must be played as it could destroy the bond market. It all seems like urinating in the wind and grasping at straws by the Bank Of England with an economy that is now out of control. The public cannot be squeezed any further with Keynesian policy because   pay cuts and public service job cuts will leave those working withing the private sector with a huge benefit burden to pay for the public sector workers  facing unemployment.

Where does it go from here? must we at last face the music for years of frivolity?

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