Everything points to recession
A recession is a decline in a country’s GDP (gross domestic product) or negative real growth for two or more successive quarters. It is usually caused by many factors that individually are small problems but combined cause a much larger issue that affects the whole economy.
- High street retail sales slump- retail sales at Christmas 2007 didn’t increase by the expected amount. Experts predicted a slow month but they didn’t realise how slow it would be, they only increased by 0.3% over last Christmas’ sales. In comparison the sales increase at Christmas 2007 increased by 2.3% and in 2006 it was 2.6%. Growth of sales has slowed because of the lack of consumer confidence and high interest rates. Next Christmas’ sales are expected to fall further as households have yet to feel the effect of the latest bank of England interest rate increases. Manufacturers and retailers are calling for a rate cut so they can afford to stay in business. Internet shopping has also affected high street sales. More and more people are using the internet for their Christmas shopping as it is convenient, there’s a greater variety of items and prices are much lower.
- Pound at record low against Euro- the pound has fallen to an all time low against the Euro at about 76p to the Euro. The pound is expected to fall further through 2008 as the UK economy slows, investors are now moving out of high yielding currencies and into low yielding currencies like yen. A weaker pound would make the UK more competitive on world markets but it could also raise the cost of imported goods and goods purchased by British people abroad could be more expensive. The problem is that the drop in value of the pound won’t have an immediate effect on the UK’s economic growth and manufacturing; this will force the Bank of England to make further rate cuts throughout 2008 weakening the pound further.
