David Cameron finally announced in his pre budget statement that the economy has not recovered as anticipated. The UK economy has been hampered by tough austerity measures combined with an increase in VAT and fuel prices. This has been further exacerbated by economic depression in the Eurozone and a general slowdown in the global economy. The UK growth forecast for 2012 has been slashed to a meagre 0.9% and youth unemployment continues to rise. This compares to growth forecast in the US of only 2%. Germany has not fared much better, having failed to raise more than two thirds of its targeted bond sale. Investors and Banks effectively signalled their concerns over the future of the Euro. Even China is beginning to feel the effects of the global recession having reported a slowdown in manufacturing orders in November 2011.
The economic uncertainty over the Eurozone has had a knock on effect on the banks who do not have sufficient liquidity to lend to businesses. Small businesses are now braced for a double dip in the first half of 2012 and have therefore cut back further on their spending.
The Organisation for Economic Development (“OECD”) predicts that the recession will continue for the first 3 quarters of 2012. Given that the OECD have been found to be optimistic in the past, we can assume the recession is likely to continue to the end of 2012 with the possibility of a minor boost during the Olympics in the summer. Fuel and transportation costs are set to rise further in 2012 whilst earnings are unlikely to increase in line with the expected inflation of 5%. Unless something is done, this is likely to result in a greater reduction in consumer spending than the OECD are predicting.
In a recent statement, the Federal Reserve have announced plans to introduce further quantitative easing in the US in a bid to tackle the worldwide economic slowdown. Whether the effects will be noticed in the UK remains to be seen.