Britain Limps Out of Recession
Jan 26th 2010 9:50AM
Updated Jan 26th 2010 8:49PM
Of the European nations, only Spain has yet to emerge recession. Its unemployment rate is 19.4%, which is the highest in the eurozone, and its property prices are still falling. Spain's downturn, which started in later in the third quarter of last year, is expected to continue into next year.
Britain's weakness is still broad-based, and most sectors were flat. The country's growth prior to the recession came in the housing and financial sectors, so when the bubble burst, Britain was hit hard. Analysts at Capital Economics expect the eurozone to grow by 1.5% this year, but it sees Britain's growth as weaker, at just 1%.
Avoiding the Dreaded Double Dip
Now the big question for all the G7 nations is how and when to wind down their economic stimulus programs. Timing these moves incorrectly could result in an economic backslide, and the last thing anyone wants to see is a double-dip recession, about which both the International Monetary Fund and the U.N. have warned. Now the countries need to look for ways to shrink their massive deficits, while at the same time improving employment levels.
U.K. Chancellor Alister Darling has admitted that Britain's recession will be deeper than originally thought. The official estimate had been that the economy shrank by 3.5% in 2009, but the prediction now is 4.75% drop in 2009. He's predicting a 1% to 1.15% growth rate for 2010.
The Bank of England, led by Governor Mervyn King, left their main interest rate target unchanged at 0.5%, where it has been since last March. The bank's monetary policy committee also decided to maintain a 200 billion pound asset purchase program to keep credit flowing. Now that the recession has ended, the bank likely will begin to rein in those purchases over the next few months.