Are we slipping into recession? | Gladstone Brookes

Are we slipping into recession?

Are we slipping into recession?

Just as we seem to be fully recovering from the depths of the recession brought on by the 2008 financial crisis, economists say they’re picking up warning signs that we might be slipping into another.

In the week that Chancellor of The Exchequer Sajid Javid pronounced the end of austerity, a new report called the Purchasing Managers Index suggests the economy may still be in trouble.

Slipping

Economist Chris Williamson said: “The lack of any meaningful growth in the dominant services sector raises the likelihood that the UK economy is slipping into recession.
“The construction and manufacturing sectors also shrunk in August.”

Services

Services account for 80% of the UK’s economy and according to the report they barely expanded in August with a score of 50.8 compared to 51.4 in July.
Any figure above 50 denotes growth, but below 50 means the market is contracting. The overall figure when manufacturing and construction are included is 49.7 – the second contraction in three months.

Negative growth

The contraction between April and June was the first since 2012.
A recession is defined as a period where negative growth is experienced in two or more consecutive quarters.
Mr Williamson commented: “While the current downturn remains only mild overall, the summer’s malaise could intensify as we move into autumn.”

Blamed

The dip is being blamed on Brexit uncertainty and higher business costs.
IHS Markit, who produced the report, say UK firms are hiring and taking on new clients at a slower rate while they try to work out if there will be a ‘no-deal’ Brexit at the end of October.
It said that service-based industries like hotels, restaurants, banks and insurers are having their profit margins squeezed by higher wages, fuel costs and utility bills.

An end to austerity

Chancellor Javid did not seem concerned about the possibility of a recession when he announced £13.8 billion worth of investment across all government departments, claiming he had ‘turned the page on austerity’.
He said: “No department will be cut next year. Every single department has had its budget for day to day spending increased at least in line with inflation. That’s what I mean by the end of austerity.”

Not convinced

But not everyone was convinced the spending spree marked the end of austerity.
Director of the Institute for Fiscal Studies, Paul Johnson, said: “We of course live in a time of extreme economic uncertainty and I think the big risk in saying that austerity is over is that the economy starts to do significantly worse, which it might if we have a no-deal Brexit.

“Then the deficit and debt will start rising and we are in danger of having another dose of austerity to get that over with for a second time.”

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