NEWS - UK is officially in recession (23/01/09)

The UK is now in recession for the first time since 1991.

Gross domestic product (GDP) fell by 1.5% in the last three months of 2008 after a 0.6% drop in the previous quarter. It represents the biggest quarter-on-quarter decline since 1980 and a 1.8% dcrease from the same quarter a year ago. (GDP is the most commonly used indicator of national income - it measures the sum of incomes received by the various wealth-creating sectors of the economy, from manufacturing and retail to agriculture and service industries.) This means that people have been earning less because of reasons such as jobs being cut. Consequently people tend to have a fear of spending too much money which might cause them financial problems later on as nobody can be certain of what the future holds. This actually puts the economy under even more pressure as the key solution to the problem is trying to get consumers to spend more.


Bleak retail sales have forced firms such as Woolworths into admission accelerating unemployment within the UK.

The Office for National Statistics (ONS), revealed that manufacturing made the largest contribution to the economic slowdown. The industry fell by 4.6% despite hopes that the weak pound would help exporters. The ONS also revealed that all elements of the economy shrank from the previous three months except for agriculture.

Could anything have been done or be done?

There have been many efforts to prevent the recession deepening, although critics say they have not gone far or done enough. For instance, the Bank of England has aggressively cut interest rates to 1.5%. The reason being they tried to drive down the cost of lending so that it would make it easier for consumers and businesses to access credit. However on the other hand banks have been reluctant to lend sufficiently, despite a £37bn injection into major banks, and a scheme to offer insurance to banks against potential losses on risky loans.

Furthermore a temporary cut in value added tax (VAT), from 17.5% to 15%, was an attempt to encourage consumers to spend and boost the retail sector and wider economy.