Is Britain now out of the recession for good?
Britain is finally out of recession. However growth is not yet secure and there is the possibility that it may slip, exports rely upon the weak sterling that could change if the overall economy improves. The banks may be in a better financial position but carry on the same way they always did. Overall the prospects still look bleak for ordinary workers for some time yet so it is unlikely to feel like there is much of a recovery for some time yet.
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the self fullfilling prophecy
The media has had a large part to play in this recession. Public perception of the state of the economy is crucial. By constantly stating that we are in a recession, our recession lasted longer than any other rich country. The public read about us going through a recession and therefore their spending habits turn into that of someone suffering in a recession; even if they are unaffected and still have a job! The analysts now say that we are out of the recession, and the media publicise this, people will stop having such protectionist attitudes to spending and this will improve the economy, then we will not return to a recession this quarter.
We will never be out of the recession for good.
The way our capital system is devised means that our markets naturally go boom and bust. We will always have time of growth and times of recession. We may not see it as bad as we have done over the last 18 months, but there is no doubt that there will be another recession. The founding father of economics, Adam Smith recognised this. Our system needs recessions to cut out the inefficient businesses. The cyclical nature of our capitalist system means that our markets will never remain stable. We will always have times of boom and times of bust. So just because this recession is over, do not think that we will never see a recession again.
This argument is based on the misconstrued noun tense of 'the recession'. The recession refers to the recession that is occurring (or was occurring) over the past six quarters. So is this recession over for good, or will we still suffer from this recession, even if the analysts say it is over. This is the right construction of the question. It is obvious that there will be another recession at some point, recessions will never disappear so long as we operate under a capitalist system.
Labour put the VAT back up to 17.5% far too quickly
Recessions are times when the economy shrinks. The GDP is worth less. This is measured in quarters of the year. Our GDP, our economy, has shrank for 6 consecutive quarters and in the last quarter of 2009 it finally had some growth. However, the last quarter of 2009 was the last quarter of the VAT being 15%. Now, VAT is back up to 17.5%. Shops that kept the same prices and took all the profit from the VAT cut will suffer from a lower profit level and so will want to sack staff to bring their profits back in line. If the shops allowed the consumer to have the discount from the VAT cuts then they will see a lower level of sales due to the prices being higher. Both of these effects will lower our GDP and therefore, we should expect to see our economy shrink in the first quarter of 2010 and therefore we will be back into a recession.
The decision to raise VAT was nothing but a sensible decision for the Government and it is one that will help our economy, Recession occur when public confidence in the state of the economy is low. If Government start showing faith in the economy, the public will follow. They will begin to spend their hard earned pennies. This will heighten the demand of products. Companies will scale up production, to do so they will need to hire more people, more people will have jobs, then more people will spend money. The Government by returning the VAT to normal rate was showing the public that it is time to return to normal spending habits.
People will actually have less disposable income this year than last
Although our nation GDP might be showing sign of growth, Britain will still feel as if it is in recession. Though technically we may not be, surely it is how the people live that is a crucial factor in deciding if there really is a recession or not. The will be more tax rises in April to welcome us to the new tax year and this will automatically lower our levels of disposable, spendable income. If we have less spendable income, we will spend less. If we spend less, businesses make less profit. If they make less profit they scale down the work force and scale down production. Upon doing this the national GDP falls and we are back into a recession, we need to make sure that people feel they CAN spend their money before we declare ourselves out of this recession for good.
Redundancies and unemployment are still affecting people
Although the rate of unemployment did not hit 3 million as was predicted a year ago, the figures are misleading. Those who were made redundant were able to find new jobs, but for a lower wage. Those who managed to keep their jobs settled for a lesser wage. The average wage cut in Britain was 28%[[David Posser, http://www.independent.co.uk/news/business/comment/david-prosser-the-real-life-recession-will-continue-1878932.html%5D%5D. This means that even thought the GDP may be up, people are still earning less than what they were accustomed to. Once again, this is another factor that makes people spend less, which will spiral us into another recession. The time for champagne is certainly not now.
We are awaiting the ‘double dip’
Statistically, it is always a serious risk after arising out of a recession that for the next quarter or two the negative growth of GDP would continue. We can even see this from our own experience of the 1990 recession. There we had a shrinking GDP for 5 consecutive quarters and then one quarter of growth set at 0.1%, followed by another 0.1% growth quarter. However, the quarter after this GDP fell by 0.2%, thereby technically that quarter being a time of recession. After all, the word recession comes from the word recess, to pull back. There is a strong chance that our economy will regress once more and we shall ‘double dip’ into the recession.
The Government has no money to promote further growth
Due to the public finances being a no-mans land, the Government has no expendable cash to introduce spending stimuli for the public. Human nature is to be drawn in to advertising and incentives. That’s why we all flock for BOGOF offers, even if we do not need that item in the first place! The government similarly needs to entice the public to part with their cash. The VAT cuts were one way of doing this but this now has been raised back to 17.5%. The government cannot afford any such measures. We need these measures to stay afloat, but the poor borrowing decisions of the past means that the public are not going to feel enticed to spend their money this quarter and therefore we will slump back into a recession next quarter.
What do you think?