UK economy at recession’s door

Most students starting their economics courses this autumn have never known what it is like to live through a recession since the last time Britain went into a downturn was in the early 1990s. In fact, there have been only five recessions since the end of the Second World War: in 1974, 1975, 1980, 1981 and 1991.Is this all about to change? Yes.

Source: The Independent

The latest data from the UK Statistics Authority suggest that a recession is much closer than we think. Indeed history may show that the economy is already in a technical downturn.

Economic growth was zero in the second quarter of 2008 and the annual rate of expansion has shrunk to just 1.4% - the slowest pace of growth since we started to climb out of the last recession in 1992.

The production industries suffered a 0.8% fall in output between April and June whilst growth in services was anaemic at just 0.2%. And, despite the recent depreciation in sterling, exports have weakened, perhaps because of macroeconomic weakness in our largest export market - the Euro Area.

Household consumption also dipped - which is unusual - the result of a combination of influences such as falling house prices and a collapse in consumer confidence. This drag on spending will intensify once unemployment starts to rise at significant rates and this could be just a few months away.

Defining recession

The simplest definition of a recession is a time period of at least six months when an economy suffers a fall in national output – measured by gross domestic product (GDP). Taking this as our starting point several countries have dropped into a ‘technical recession’ during the summer months.

First it was Denmark, followed by Italy and most recently Japan. And just a few days ago, the European Union published some figures suggesting that the Euro Area – a group of fifteen nations who share the same currency, the Euro – is also on the brink of a technical downturn. Germany’s economy also shrank in size over the last three months.

BBC news: Symbolism of a stagnating economy:

Official data release from the Statistics Commission (pdf file)

Guardian: UK moves closer to recession

Telegraph: UK economic growth hits a brick wall

The Times: Recession: boom years are over as economy slows to halt

This video report from Rory Cellan-Jones looks at the reason for the descent into recession