Economists had previously estimated that the economy would contract by roughly 0.2 percent; however the wettest April to June period on record combined with the Queen’s Diamond Jubilee celebrations – which resulted in an extra days holiday – are said to have contributed to the bigger contraction.
It is the third successive period of contraction, after a 0.4 percent contraction in the final quarter of 2011 and a 0.3 percent contraction during the first quarter of this year; leaving the UK in its longest double-dip recession since 1975.
The latest figures from the Office for National Statistics are set to increase the pressure on the Chancellor George Osborne to ease his austerity measures and push for growth.
Yesterday, in a statement the Chancellor said that the deeper than expected contraction was disappointing, and he confirmed the country’s deep-rooted economic problems, before adding: “We're dealing with our debts at home and the debt crisis abroad. We've made progress over the last two years in cutting the deficit by 25 percent and businesses have created over 800,000 new jobs.
“But given what's happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show that's exactly what we're doing.”
The figures from the Office for National Statistics come a week after the International Monetary Fund called on the UK government to prepare a “plan B” to pump life into the economy.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
[ add comment ] ( 6 views ) | permalink |
( 3 / 520 )Within a report published yesterday (July 23rd) a leading think-tank warned the Chancellor, George Osborne, that the austerity programme introduced to boost confidence and encourage investment, is having the opposite effect by deterring businesses and consumers from spending.
The Institute for Public Policy Research have claimed within their report that the UK’s recovery from recession is set to see the long-term GDP growth-rate drop to 1.7 percent over the next three years – the lowest level since the Second World War and the equivalent of £165 billion in lost output over fifteen years.
Within the report, the think-tank’s chief economist, Tony Dolphin, said: “The government's measures to tackle the deficit were predicated on the assumption that they would lead to greater confidence and certainty about the future; in fact, they have had the opposite effect.
“The government should implement temporary tax cuts and a boost to infrastructure spending not offset by cuts elsewhere. This would mean borrowing more in the short term.”
He added: “Fears that more quantitative easing would increase the risk of higher inflation in coming years are misplaced. Inflation pressures in the UK in recent years have been imported and are largely the result of high commodity prices.
“Domestic inflation pressures, for example wage growth, have been very low and this is likely to remain the case while there is a good deal of spare capacity in the economy. The time to worry about inflation is after the economy is restored to growth, not before.”
In response to the think-tank’s warning, a Treasury spokesperson, said: “Reducing the deficit is an essential element for restoring stability and strength to the UK economy.
“Tough decisions taken by the government on fiscal policy have created the space to support the economy through monetary activism such as quantitative easing. It has also established credibility that has enabled firms and households to benefit from low interest rates.”
The spokesperson added: “The government continues to look for ways to use this hard-won credibility to support the economy, as seen in the recent announcements of the Funding for Lending Scheme and using guarantees to help investment in infrastructure, as it protects the UK economy from the ongoing uncertainty and instability in the Eurozone.”
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
[ add comment ] ( 4 views ) | permalink |
( 2.9 / 447 )According to a survey published today (July 23rd 2012), despite the Bank of England’s initiatives aimed at boosting lending to the economy, households are set to find it harder to gain access to credit than was thought three months ago.
The latest report, which looks at various aspects of the UK economy states that it is expected that banks will shrink lending to consumers by nearly eleven percent through 2012; an increase of roughly four percent from a forecast in April.
The report blamed the double-dip recession for the weakness in lending, whilst the economic forecast for 2012 has also been downgraded as a result from 0.4 percent to zero percent.
Although it is expected that credit access for households will become tougher for the remaining five months of the year, the report states that the contraction for business lending should not be as much as originally forecast.
In spring, it was forecast that business lending would contract by 6.8 percent; however the revised forecast now expects it to contract by 6.2 percent – despite the announcement last month, of the Bank of England’s Funding for Lending Scheme.
Within its assessment of lending to the business sector, the report states: “Although the schemes should help to lower banks' cost of funding, some banks may be reluctant to access these schemes for fear of the stigma it could create in financial markets.
"The potential positive impact on lending may also be outweighed by the recent deterioration in the economy. Banks will remain reluctant to lend in this environment and demand for credit is also likely to remain weak across all categories of borrower."
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
[ add comment ] ( 5 views ) | permalink |
( 3 / 540 )The Bank of England should be given the power to cap loan-to-value (LTV) ratios, according to the International Monetary Fund (IMF).
Within their latest report which looks at the UK economy, the IMF have suggested that the Bank of England’s Financial Policy Committee (FPC), should be given power to cap LTV levels, in an effort to prevent property price bubbles.
The idea to cap LTV’s had previously been suggested at the beginning of the year by the Chancellor George Osborne, who claimed that providing the bank with such powers could help prevent another housing crisis. However, the suggestion was met with a mixed reaction, with some suggesting that a cap could put off homebuyers, particularly first-time buyers.
Despite the previous mixed reactions, and issues caused by introducing a cap elsewhere in Europe, the IMF said within their report: “A broader macro prudential toolkit for the FPC is desirable. In particular, the power to limit loan-to-value and loan-to-income ratios is essential, as higher capital requirements alone are likely to be insufficient to restrain property bubbles.
"This will be especially relevant if most banks are comfortably above minimum capital requirements during the boom, such that higher risk weights on property loans may have little effect on banks' lending behaviour.”
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
[ add comment ] ( 5 views ) | permalink |
( 2.9 / 592 )The Bank of England have signalled that interest rates could be cut to an all time low of 0.25 percent in the coming months, in another bid to stimulate the UK economy.
Minutes of July’s Bank of England’s Monetary Policy Committee meeting – which were released earlier this week – show that the committee are prepared to visit a further reduction in rates, amid a backdrop of recession and falling inflation.
The move to reduce the interest rates further would mark a key shift in the Bank’s policy stance; and it would also be the first move of interest rates since March 2009 when they were slashed to their current low.
According to the minutes, one of the decisive reasons for the change in stance is the recently unveiled “Funding for Lending Scheme” which is due to be launched in August and should limit any damaging impact a rate cut might have on banks’ or building societies’ ability to lend.
Within this months meeting, the MPC concluded that: “the impact of the Funding for Lending Scheme and other policy initiatives might, in time, alter the Committee’s assessment of the effectiveness of such a rate reduction.
"The Committee could review this option again when the impact of the Funding for Lending Scheme and other policy initiatives was more readily apparent; that was unlikely to be for several months.”
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
[ add comment ] ( 3 views ) | permalink |
( 3 / 577 )
Random Entry
