UK heading for second downturn?

July 17, 2009

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.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

Unless people wake up to the true nature of the thing, it may be not only a “double downturn” but a multiple downturn ending in permanent recession. The recession was caused by the credit bubble but that was only a symptom, not an underlying cause. The underlying cause was the ‘economic growth’ fetish. The credit bubble was driven by the greed of financial institutions. It was also intended to promote consumerism of unneccessary or overpriced goods and services. The system is being brought down by its inherent contradictions. It is coming up against the constraints of finite resources and a fragile ecosystem. We need a more sustainable economic system, not based on so-called ‘economic growth’ to get us out of the mess that has been created. If we always try to cure recessions by restoring the staus quo ante, with perhaps, a little bit of ineffectual ‘regulation’ on the side, the same things will happen again and again.

Posted by farnaby | Report as abusive

a very succint and intelligent summary, farnaby – let’s stop trying to figure out ways to get back to a situation where greedy idiots strive to buy ever more rubbish they don’t need with money they don’t have… a more sensible approach is to try to figure out a way that lets people produce and consume in a balanced way with due awareness of the impact of our actions (economically, environmentally, culturally etc). remember, happiness is more than just a bigger TV…

Posted by mark | Report as abusive

Who indeed would want to be George Osborne, putting this ineffictive “Regency “fop” in charge of of Britains purse strings! it needs someone with charisma and knowledge,and Dave Davies would be my choice

Posted by rocky | Report as abusive

People should only buy what they can afford, and not borrow to live on.

I think there will be more people renovating and diying in there own house rather than move or employ builders or tradesman to save costs

Posted by steph | Report as abusive