Figures to be published later today are expected to show that the UK finally came out of recession in the last quarter of 2009.
The UK Economy has contracted for last 18 months, and was the last major economy still in recession. Many economists expected the UK to have emerged from recession in the third quarter of 2009, and were taken by surprise by the continued contraction of the economy.
Despite this piece of good news the messages are still mixed, on one hand the economy has started to grow and unemployment took a surprising fall recently but there are major issues on the horizon.
After the election all the parties say there will be cuts in spending, with freezes to public sector pay added to possible tax rises we are likely to see cuts in high street consumer spending which could in turn jeopardize the delicate recovery. Furthermore inflation took a worrying turn upwards last month and the Bank of England must decide in February whether to continue with its program of Quantative Easing (QE).
Finally the ‘elephant in the room’ is interest rates. At some point we must surely start to see interest rates rise, whether due to changes made by the Monetary Policy Committee of the Bank of England or as a result of commercial pressures as illustrated last week by the Skipton Building Society. When interest rates do start to rise there will be a big impact on household budgets leaving less to spend in the high street, the effects will also be felt in the boardroom as highly leveraged businesses struggle to maintain debt repayments.
Although the news on unemployment and the UK finally coming out of recession is to be welcomed, we still face a bumpy ride in the weeks, months and possibly years to come. We will still be seeing the effects of the credit crunch and the deepest recession since the 1920’s for a long while to come.