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The recession just became a depression


“this is now the longest technical recession since at least 1955.”

The devaluation of the pound sterling in theory should increase exports of goods from the United Kingdom. However, you must consider that raw materials and energy needed to manufacture products whatsoever are likely to be priced in euros and dollars and devaluing the pound makes the product more expensive on the books before it is sold in devalued pounds.

It’s a catch 22 situation, but, of course, Gordon Brown has insisted that its successful policies including “Quantitative Easing” and zero interest rates have been a great success, and that the greater devaluation of the pound in the history of the world is a boon for British exporters. This would be ignoring history as we saw in the case of Zimbabwe’s hyperinflation when they tried to inflate their way out of their problems.

This recession just became a depression
By Edmund Conway Economics Last updated: October 23rd, 2009

It is difficult to know what to be most shocked by in the gross domestic product figures published by the Office for National Statistics this morning: the fact that we are in the longest-lasting deepest continuous recession in recorded history or that no-one in the City foresaw it.


The GDP fall, as you may have seen elsewhere, means that this is now the longest technical recession since at least 1955 (and most probably since the 1930s, though the ONS doesn’t have figures on this) at six quarters, or a year and a half, long. The late 1970s/early 1980s slump was deeper, but was not a long uninterrupted period of economic output falls.

Either way, though, the difference is academic. So far, the UK economy has contracted by 5.9pc, compared with an overall slide of 6pc in the early 1980s. But this time around, the recession was far faster than the last few ones, as evinced by this chart from the ONS themselves (though bear in mind the 1980s line doesn’t include a couple of quarters of contraction in 1979).

Anyway, as I see it there are a few important instant takeaways from the figures this morning:


1. It shatters any delusions that Britain is “well placed” to withstand the recession, as claimed by Gordon Brown. The fact is that the Government and the Bank of England have, together thrown more stimulus at the economy than in almost any other previous downturn, and still not averted this horrendous decline. The fact is now that the UK will come out of recession significantly later than most other Western nations. For more on where our fellow countries are, check out this useful primer by my colleague Harry Wallop.

2. This significantly raises the likelihood that the Bank of England will have to extend its quantitative easing (QE) programme beyond the £175bn ceiling it has currently laid out. Given that the Bank (which meets and decides on this the week after next) has already done more in terms of QE than any other central bank in the developed world, the significance of this cannot be underplayed.

On this front, here’s Malcolm Barr from JP Morgan: “Given this morning’s news, we are revising [our forecast] to anticipate a £50bn extension… The MPC was already concerned that the prospective recovery in output would be insufficient to begin to absorb slack and prevent an inflation undershoot: those concerns will be heightened by this morning’s data, even given the potential for upward revision.

3. A revision is possible. These first estimates comprise are around 60pc forecast and 40pc actual hard data collected by the ONS, so inevitably involve a certain amount of error possibility.
You can read Conway’s full blog for the rest of the post.

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