Why the UK is heading back into another recession

On this blog, I have previously commented that the UK economy is heading back into a recession. Recent predictions from the OBR have predicted growth for the forthcoming year. However, because of depressed spending due to the cuts, I would expect a negative GNP to occur as early as in the next set of announced figures; the UK will enter a fully blown second recession either in 2011 or in the first half 2012 when broadly speaking, the current Government’s measures to shrink the state are in full effect and the effects of the previous Government’s stimulus package has ceased.

It appears that Cameron and Co have failed to grasp many key aspects of economies and governance. As respected economists Gordon Brown and Alistair Darling led the way in bailing out the banks; as such, their actions were mirrored by every major economy affected by the downturn. Likewise, the stimulus package to prevent collapse was duplicated the world over. What this also demonstrates , is the "herd mentality" of Governments; just like individuals who are given the freedom to act independently, generally, they simply mimic the actions of others.

Whilst not as well respected as Brown and Darling, Osbourne’s actions of scaling back the state and cutting spending has already began to be copied by other Governments. When these cuts are in full swing, and Governments all over the World decrease their spending, this will result in less people in work, leaving consumers with a lower level of disposable income. As such, the UK’s exports will decrease, as will the performance of the inter-linked worldwide markets.

It has now been proven beyond discussion, that the markets cannot, and do not, provide all of society’s needs. This over reliance on markets to drive the world’s economies, especially when additional pressure is placed upon them by short-termist governments, will result in a worldwide downturn.

I would urge the Government to change its current course of action, and whilst a cliché, would encourage it to “think of the bigger picture”. Unlikely, whilst "fag packet economics" prevails this is very unlikely to happen. A combined approach the market's ills must be adopted, as worldwide problems cannot be solved by unilateral actions.

On a slight side issue, for those with a portfolio of investments, I would very much think about moving your money away from equities due to the unsteady FTSE and international market performances; unless you have an extremely high risk tolerance, I would suggest moving into secure investments including cash for the short to medium term. Even bond investments have been reduced to almost an irrelevance due to appalling bond yields. Whilst failed economists would regard low bond rates as a positive due to the decreased cost of Government borrowing, these are good indicator of future growth prospects. I would also not consider commercial property to be a worthwhile investment, due to extreme liquidity issues from Central Banks and a real hesitancy to lend by banks. I would however exclude purchasing residential property for oneself to reside in from this statement, as over the (very) long term, owning property is better than the alternative.