Further conformation, the United Kingdom; the second largest European economy, ensured a deep contraction seen in the second quarter, affected by the ongoing turbulence in financial markets, which resulted in curbing the overall spending, in addition to snatching away all the confidence in various sectors. The sequence of contraction seen previously in the Kingdom was what we predicted, with all the seen downturns in sectors; starting with the housing ending with the manufacturing sector.
The drastic decline in the Kingdom's activity; pushed policy makers, as we know, to approve using protracted measures just to keep pushing through those tough times, where we currently foresee the impetus the Kingdom obtained from the ongoing stimulus packages launched by the Bank of England.
Previously this month, we have seen King's statement on various occasions, where an expansion is currently taking place in the current quarter (third quarter of 2009), boosted by the optimistic improvement seen in the services sectors heading back into an expansion, breaching the 50 barrier, along with the improvement seen in the manufacturing sector heading for a month in an expansion and then retreating back to undershoot the 50 barrier, heading in a minimal contraction.
When King testified against the Treasury Committee, he said “Nevertheless, the decline in activity has moderated and growth seems set to resume. That is due to the combined effect of three factors that are supporting a recovery: a slowing in the pace of de-stocking, the lower level of sterling, and the extraordinary monetary policy actions of the past year which have acted to increase the supply of money by cutting Bank Rate to 0.5 percent and purchasing both public and private assets”.
As we all know, the bank had already lowered their benchmark mark down to 0.50%; trimming 425 basis points, in order to end the ongoing downturns. Moreover, the bank approved the use of 175 billion pounds to purchase long-term gilts, attempting to restore some stability in the hectic financial markets. All such actions were aimed towards fighting the threat of deflation, which prevailed in markets for some time, especially after the bank projected that prices would be undershooting their targets. However, according to the latest estimates; prices remain the comfort zone at 1.6%, plummeting from the previous 1.8%.
According to today's released reading; we see the GDP contraction improving to -0.6% on the quarter from the previous -0.7%, yet the yearly reading remained at -5.5%. The minimal improvement seen today was boosted by the improving household consumptions to -0.6% from the previous -1.5%, alongside the General Government Expenditure rising 0.6% in the second quarter from the previous 0.1%, seen in the first quarter.
Taking a look deeper into the table, we see improvement within Exports and Imports; where the contraction in export levels improved to 1.4% from the previous reading -7.1%, along with imports heading toward a -2.2% from the previous -7.0%, this clarifies that activity is occurring in the Kingdom, even if its minimal at the time being, yet improvements of activity would be taking place before we seal this year, hopefully.
We have two things to consider in the United Kingdom; first, is the economy really recovering from the worst recession since World War II, or the ongoing interventions by policy makers, which could be the main reason behind this improvement. Second, if the surging unemployment rates act to push the kingdom back into a contraction in the upcoming year, we project an augmentation to current jobless rates 7.9%, in particular.
Therefore, my dear reader we must keep in mind that even if expansion would be taking place in the upcoming quarters, it would remain sluggish, because the lagged indicators, such as unemployment rates, will act negatively by curbing the spending, causing the Kingdom to require further time to head into the previously seen expansion, since a drastic expansion before the end of 2010 doesn’t seem to be likely.
The drastic decline in the Kingdom's activity; pushed policy makers, as we know, to approve using protracted measures just to keep pushing through those tough times, where we currently foresee the impetus the Kingdom obtained from the ongoing stimulus packages launched by the Bank of England.
Previously this month, we have seen King's statement on various occasions, where an expansion is currently taking place in the current quarter (third quarter of 2009), boosted by the optimistic improvement seen in the services sectors heading back into an expansion, breaching the 50 barrier, along with the improvement seen in the manufacturing sector heading for a month in an expansion and then retreating back to undershoot the 50 barrier, heading in a minimal contraction.
When King testified against the Treasury Committee, he said “Nevertheless, the decline in activity has moderated and growth seems set to resume. That is due to the combined effect of three factors that are supporting a recovery: a slowing in the pace of de-stocking, the lower level of sterling, and the extraordinary monetary policy actions of the past year which have acted to increase the supply of money by cutting Bank Rate to 0.5 percent and purchasing both public and private assets”.
As we all know, the bank had already lowered their benchmark mark down to 0.50%; trimming 425 basis points, in order to end the ongoing downturns. Moreover, the bank approved the use of 175 billion pounds to purchase long-term gilts, attempting to restore some stability in the hectic financial markets. All such actions were aimed towards fighting the threat of deflation, which prevailed in markets for some time, especially after the bank projected that prices would be undershooting their targets. However, according to the latest estimates; prices remain the comfort zone at 1.6%, plummeting from the previous 1.8%.
According to today's released reading; we see the GDP contraction improving to -0.6% on the quarter from the previous -0.7%, yet the yearly reading remained at -5.5%. The minimal improvement seen today was boosted by the improving household consumptions to -0.6% from the previous -1.5%, alongside the General Government Expenditure rising 0.6% in the second quarter from the previous 0.1%, seen in the first quarter.
Taking a look deeper into the table, we see improvement within Exports and Imports; where the contraction in export levels improved to 1.4% from the previous reading -7.1%, along with imports heading toward a -2.2% from the previous -7.0%, this clarifies that activity is occurring in the Kingdom, even if its minimal at the time being, yet improvements of activity would be taking place before we seal this year, hopefully.
We have two things to consider in the United Kingdom; first, is the economy really recovering from the worst recession since World War II, or the ongoing interventions by policy makers, which could be the main reason behind this improvement. Second, if the surging unemployment rates act to push the kingdom back into a contraction in the upcoming year, we project an augmentation to current jobless rates 7.9%, in particular.
Therefore, my dear reader we must keep in mind that even if expansion would be taking place in the upcoming quarters, it would remain sluggish, because the lagged indicators, such as unemployment rates, will act negatively by curbing the spending, causing the Kingdom to require further time to head into the previously seen expansion, since a drastic expansion before the end of 2010 doesn’t seem to be likely.
