A ‘double dip’ recession can be avoided

BANK of England governor Mervyn King’s warning of a “choppy” recovery in the UK, accompanied by similarly cautious comments from the across the Atlantic, sent stock markets in London and elsewhere into reverse last week.

But the risk of a “double-dip” recession is still a long way from being as inevitable as some of the gloom-merchants would have us believe.

It is true there is wide agreement that the scale of recovery seen in the UK, and the rest of Europe, during the second quarter of 2010 is likely to be “as good as it gets” for now.

By any standards, however, it has been pretty good.

Germany, an important market if the UK is to achieve the much-needed export-led recovery (as opposed to the debt-funded growth in the consumer sector we have seen in the past), saw its GDP grow by 2.2% during the second quarter.


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This is exactly double the current estimate of 1.1% for the UK which, even so, represents our best quarterly performance for four years.

Last week’s upward revision of data for the construction sector suggests that the overall figure might yet be upgraded to 1.2% which, if confirmed, will be the strongest growth rate seen in the UK since the same figure was achieved in the first quarter of 2001.

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Lower, but still relatively solid growth, was also achieved by a number of other European economies, France, Belgium, Austria and the Netherlands, although Greece remains deep in recession.

Overall, however, the prospects for UK exporters in our nearest overseas markets appear relatively bright, with the faster-growing economies of the emerging nations further afield also representing substantial opportunities.

It is, of course, inevitable that growth rates across Europe will fall during the second half of the year as government austerity measures start of take effect.

However, the data for the second quarter shows that the public sector has already ceased to be an engine for growth in the UK and so, while Government cuts will certainly see the overall growth-rate fall, there is every reason to believe that the private sector will keep GDP in positive territory.

The biggest threat will come if the Bank of England loses its nerve over inflation and raises interest rates, which would add to the recent strengthening of the pound and make our exports less competitive.

The minutes of this month’s Monetary Policy Committee discussion, due out tomorrow, will make interesting reading but the likelihood is that the views of committee “hawk” Andrew Sentance, who has favoured a quarter point rise at recent meeting, will have been balanced by other members who believe that further stimulus for the economy may yet be required.

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