UK heading for second downturn?
MacroScope is pleased to post the following from guest blogger Julian Chillingworth. Chillingworth is chief investment officer of UK investor Rathbones. He questions here whether Britain will face a second downturn shortly after struggling out of recession.
Are we likely to witness a two-tier recession in the UK? Perhaps not a recession but certainly a secondary downturn. A vast number of people have enjoyed lower mortgage payments and a level of job security, but will this last?
The UK is in somewhat of a unique position in so far as it faces a regime change, with some obvious ramifications for policy. However, whoever takes the seat (most likely the Tories) must still cut back public expenditure and raise taxation, both within the context of high unemployment.
It will require the wisdom of Solomon as a further rise in unemployment hits tax-take and results in rising social security payments. Who would want to be George Osborne?!
Key will also be the state of the financial services industry, the banks – other G7 nations do not have the ‘core component’ element to deal with in this respect – and the consumer won’t be moved in any meaningful fashion until there is real evidence of stability there.
Economic news is improving, but in the near term sentiment will be led by the direction of earnings.
The bottom line is the US might be troughing out, but this time round, we in the UK could be on our own for a little while longer.