The UK recession – is it over?

From what I see at the numerous legal, accounting and property firms I work with it would seem that the recession is over – most firms appear to be enjoying an increase in work and thus income. Yet there are mixed messages about growth in the commercial and residential property markets and the media is again carrying warnings about the potential of a double dip.

So it was with interest that I read through the HSBC Economic Outlook (Summer 2010) to try and gain a more objective view. Here’s the key points:

The global picture

• The global economy is growing at between 3-4% this year and next so it would appear to have emerged from the negative growth of 2009
• Yet the advanced economies of US and Europe continue to struggle while the emerging economies are enjoying robust growth rates.
• The Chinese economy is once again generating rapid growth – with GDP expanding close to 12% this year.
• India, Brazil, Indonesia, Russia, South Korea and Turkey all expanding at a brisk pace too
• Euro countries largely facing austerity measures – possibly tipping some back into recession
• Switzerland, Sweden and New Zealand never ran big deficits – Germany now has a surplus
• Canada, Australia and Norway are enjoying export led growth
• The problems faced by Greece appear to have spread to Spain and Portugal with Ireland, Italy, Belgium and France in the spotlight
• There are concerns in the US where the administration passed another stimulus package – it’s deficit (at 10% of GDP) is as large as those in the Eurozone

In the UK

• The UK increased its spending by 36% in the five years but received only a 12% rise in income – the UK was living beyond its means
• The Government’s debt interest payments will account for 6% of Government spending this year (at £44 billion this is more than expenditure on defence and twice as much as on transport)
• .3% increase in GDP during the first three months following the .4% in Q4 confirmed “that the recession is finally over” but pace of growth remains short of the “business as usual” trend rate
• Consumer spending – accounting for two thirds of final spending – made a disproportionate contribution to growth before the recession but by 2009 consumer debt reached £1.5 trillion and the debt-income ration rose to 160%. Saving/debt reduction is now the priority.
• Gordon Brown’s key ration (national debt at 40% of GDP) exceeded by over a half and will exceed 70% before it starts to decline
• Unbalanced UK growth (reliance on consumer and Government spending) to 2007 is felt to have pushed the economy into recession rather than the credit crunch. Recovery needs investment and international trade.
• Office for Budget Responsibility shows economy recovering this year and next and then growing by a healthy 2.7%-2.8% from 2012-2015
• The Bank Rate is expected to rise to 1% in the first quarter of next year and will end 2011 at 2.5%
• The Emergency Budget and the announcement of £6 billion spending cuts will be followed by a third instalment – the major spending review – in October. Job losses that run into six figures from the public sector are anticipated and the impact in the Midlands and the North are expected to be severe.

So what do we make of all that? I guess that whilst we can be cautiously confident that the worst is over, we will have to wait to see the impact of the Government spending cuts, the January VAT increases and other tax changes before we know for sure. And that could take another six months or so.