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Is Britain really in recession?

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GDP Growth and Lending.jpg

Countless column inches have been used to deconstruct the latest figures for the UK’s Gross Domestic Product (GDP) that were released last week. The data released by the Office for National Statistics (ONS) showed that the economy had shrunk unexpectedly by 0.2% in the first quarter of 2012, technically tipping the UK economy into a double-dip recession.

What was revelatory was that economists and experts had predicted the ONS data to show a growth of 0.1% in January through March. However some believe the figures represent an unduly pessimistic picture of the state of the economy and should be taken with a great pinch of salt. The CBI said manufacturers were at their most optimistic for two years, while Nationwide Building Society said that consumer confidence was at its strongest for nine months.

So, who is right?

Thus far in Quarter 1 2012, job creation has been on the rise, and studies have shown that more than half of small businesses are expecting to grow this year, so the confidence is still there. The accuracy of the figures have been called into question, particularly as the latest data has been based on only 40% of the information normally used for these estimates. It is likely that the data will change as more information becomes available, as we saw in 2009. The third quarter of 2009 was initially reported as a 0.4% fall and the fourth quarter a 0.1% rise. Now the data show rises of 0.2% and 0.7% respectively — this is a big change, although mostly down to the technical changes made to the calculations.

The uploaded graphs illustrate that the economy may not be as weak as the ONS statistics reveal, but feeble lending is still holding it back.

Britain’s economic growth is weak and in need of a recovery injection. The British Chamber of Commerce wants to see a ‘reallocation of priorities that will bolster business growth’ i.e. reducing regulation, encouraging exports and improving infrastructure. The BCC also wants the Government to reduce the deficit by introducing ‘more measures to empower businesses to drive recovery’.

 

All the measures announced in the budget in order to encourage bank lending, such as the Enterprise Finance Guarantee Scheme and the National Loan Guarantee Scheme are a step in the right direction, but lending growth ultimately lies in the hands of the private sector. Small and medium sized businesses (SMEs) are the lifeblood of the economy as they account for over half of the UK’s total GDP and 60% of jobs, therefore anything that is done to alleviate the latest economic pressures can only be positive. Alternative methods like invoice finance, crowdfunding and peer-to-peer lending are becoming a more mainstream option to traditional bank finance. These new methods of funding will definitely help to ease the pressures on banks to lend.

What we should take away from this is that business confidence is very much alive and kicking. We just need the banks and other alternative lenders to maintain and improve the flow of credit, thus hopefully giving the economy a kick-start.

Further Reading:

• An economy starved of credit will struggle to grow http://www.economicsuk.com/blog/001656.html

• Double-dip Recession – What does it mean for small businesses? http://marketinvoice.com/2012/04/30/double-dip-recession-what-does-it-me...

• Britain in double-dip recession as growth falls 0.2pc http://www.telegraph.co.uk/finance/financialcrisis/9225414/Britain-in-do...

• UK sinks into double-dip recession http://www.guardian.co.uk/business/2012/apr/25/uk-sinks-double-dip-reces...

• Lending report paints bleak picture for SMEs http://www.guardian.co.uk/business/blog/2012/apr/23/lending-report-smes-...

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