The British Economy is in Trouble But There is Still Hope

In the third quarter of 2009, the British economy contracted 0.4% indicating the deepest and longest recession since the World War II. Yet, as gloomy the situation is, the UK government has some options left to revive growth.

So far, spending has been stimulated by cuts in value added tax, low energy prices and low interest rates. However, that may not be enough to stimulate consumption because of rising costs of energy, a weak labor market, high indebtedness of British households and the end of tax cuts coming soon. Adding to that a still very weak banking sector keeps restraining credit availability.

Yet, the Bank of England has some options left to revive growth and may still expand its quantitative easing program. And although it may not stimulate credit growth as much as expected it is likely to drive the Pound down which will make British products more competitive abroad. Eventually, rising exports will boost production, employment and stimulate growth.

Anna Fedec,
10/28/2009 9:31:59 AM