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Ken's musings on finance, social media, technology and life in general

Britain's economy shrinks much faster than expected- a comment!

July 24, 2009 by Ken Yeadon   Comments (0)

From The Guardian News Feed


• GDP down 0.8% in threee months to June
• City had expected a 0.3% decline, with some expecting growth

Britain's economy contracted by a record 5.6% over the past year as output fell for a fifth straight quarter, the government revealed today.

Dashing hopes that the steepest decline in growth since the 1930s might be nearing an end, the Office for National Statistics said gross domestic product fell by 0.8% in the three months to June.

The size of the drop surprised the City, which had expected only a 0.3% decline following recent signs of a pickup in the housing market and strong growth in high street spending.

Some economists had even predicted that the UK could post its first positive growth since early 2008, and the size of the decline prompted immediate speculation that the Bank of England would be forced into fresh emergency action to kick-start activity.

While the pace of decline in GDP slowed from the 2.4% seen in the first three months of 2009, the economy has suffered a cumulative contraction of 5.7% in the past five quarters. The ONS said this was double the drop in the recession of the early 1990s and almost as big as the 6.4% retrenchment during the 1980-81 slump. The 5.6% drop in GDP over the past year has not been matched since comparable records began in 1955.

A breakdown of the figures showed business services and finances, a sector that has boomed for much of the last decade, accounted for more than a quarter of the GDP decline in the second quarter.

Overall, services fell by 0.6% on the quarter and by 3.8% on the year.

Alistair Darling, the chancellor, has predicted that the economy will return to growth by the end of the year. © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds


Britain's economy shrinks much faster than expected


Does this not simply imply that quantitative easing has a much more dramatic effect on Asset Prices than it does on the real economy? I dont think that should come as too much of suprise- the whole premise of QE is that the real economy is linked to, but lags, asset prices, and the feedback loop eventually kicks in.

Perversely, if this implies that further QE is needed to prevent the "green shoots" stalling, this might actually be positive for asset prices?

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