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Will the UK Avoid Recession?
When a country's GDP declines, or there is negative real economic growth for two or more successive quarters of the year it is called a ‘recession.' In the wake of a collapse in its housing market, coupled with bad debts in a huge subprime mortgage market and a subsequent ‘credit crunch,' the US economy looks as though it will be heading for a mild recession during 2008. Global markets have been thumped at the news, while investment firm Merril Lynch has warned that the recession has already arrived. While other firms have discredited this suggestion as premature, a recession does seem likely. With that in mind, many people on our side of the pond are wondering if it could happen here.
Like many financial markets in the world, the UK has not been free from the fear of recession. The FTSE 100 share index has taken a pummelling at the start of 2008, with a number of massive falls taking it way passed the psychological 6000 point mark. However, this in itself does not indicate that recession is likely in the UK, rather there is a fear that recession in the world's most powerful economy will affect worldwide trade and commerce.
Unless you have invested heavily in shares or an investment fund recently, then the effects of the financial markets probably will not have had too bad an effect on your personal finances. On the whole the UK economy is sound after years of sustained healthy growth, but much of this has been fuelled by credit. A recent report by the Ernst and Young ITEM club noted "that the UK has been living beyond its means, with the government and consumers borrowing record amounts to fund not just investment but consumption." The worry here is that now the credit crunch has meant it is far more difficult to get credit, spending and economic growth will subsequently be restrained, and the housing market will be flat.
There are others, however, that feel that the housing market is set to dip, with the Motley Fool's David Kuo suggesting that it could slump as much as 20% due to the current market being well overpriced. Other commentators, however, are more sceptical about this, and it is quite unanimously believed the house prices will flatten out rather than fall dramatically. This view is mirrored by ITEM when it considers the state of the UK economy, which it feels will undergo "rebalancing rather than recession in 2008." It feels that with interest rates falling by three quarters of a percentage point, the country will see growth of around 2% during the year, falling well short of the 3% GDP growth in 2007. Recession in the UK, then, seems unlikely.
If you're likely to need refinancing in the next year, it will almost certainly be better to do it sooner rather than later. Take a look at ASDA Finance for personal loans and secured loans, they also have a range of other financial products that may help you save money, such as low priced car insurance and even pet insurance.
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