UK Unprepared For Recession, Think Tank Warns – BinaryOptions

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Unprepared U.K. Facing Highest Risk of Recession Since 2007

Pedestrians walk through More London Retail and office development in London, U.K.

Photographer: Simon Dawson/Bloomberg



Pedestrians walk through More London Retail and office development in London, U.K.

The risk of a U.K. recession is at its highest level in more than a decade, according to the Resolution Foundation.

Using yields on government bonds as a measure, the think tank sees the greatest likelihood of a deep slump since just before the financial crisis.

The decline of the pound, a widening current account deficit, and poor economic growth are also all worrying signs of what’s to come, according to the report “Failing to plan = Planning to fail” released on Sunday.

Resolution calculates that the past five recessions cost an average of one million jobs in the U.K. The last financial crisis would have been 12% worse, equivalent to 8,000 pounds ( $10,000 ) per household, without a strong response from the British government and financial sector.

Today, the U.K. is far less prepared than in 2008 to deal with the consequences of a recession, the think tank said. The current economic climate has blunted tools such as slashing interest rates, quantitative easing, and cutting value-added tax.

“While recessions differ in terms of the cause and effect, they are all uniformly bad for living standards,” says James Smith, Research Director at the Resolution Foundation. “Policy makers can’t prevent recessions from happening, but they can limit their damage with the right policy response.”

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UK could already be in recession amid Brexit uncertainty, think tank warns

There is ‘significant risk’ of a ‘severe economic downturn’ in the next six months, NIESR report says.

7/22/19, 1:06 PM CET

Updated 7/23/19, 5:40 AM CET

LONDON — The U.K. could already be in a technical recession and may face a severe downturn in the event of a no-deal Brexit, a leading think tank warned Monday.

The uncertainty over the U.K.’s departure from the European Union, currently scheduled for October 31, has seen U.K. growth falter, the National Institute of Economic and Social Research said in its economic forecast.

If a no-deal Brexit is avoided, the economy is forecasted to grow at around 1 percent in 2020 and 2020. In an orderly no-deal exit scenario, the economy is forecasted to stagnate, before starting to grow again in 2021.

Tory leadership front-runner Boris Johnson, who is expected to become the new prime minister on Tuesday, said he would take the U.K. out of the European Union on October 31 “do or die.” His rival Jeremy Hunt has also said he would be willing to leave the European Union without a deal if the bloc does not move on the controversial Northern Irish backstop.

The risk of a general election to break the Brexit impasse, and the policy uncertainty around a new government, is also weighing on the U.K. economy.

NIESR predicts sterling could depreciate to around $1.10 if politicians fail to negotiate Britain’s orderly departure from the European Union.

“The short-term outlook for the UK economy is very murky indeed, with a significant risk that a severe economic downturn will begin within the next six months. With economic growth already faltering, a disorderly no-deal Brexit could cause widespread disruption to trade, a sharply lower exchange rate, higher inflation and lower living standards,” the report says.

Act now to get ready for recession, think-tank urges Britain

LONDON (Reuters) – Britain is not ready for its next recession and must consider changes to the way it manages its economy to see off the downturn when it comes, the Resolution Foundation, a think-tank, said on Monday.

British gross domestic product shrank in the second quarter of this year and the economy is struggling to pick up momentum as Brexit approaches, meaning it could already be in a technical recession before it leaves the European Union.

The Resolution Foundation said the Bank of England could muster only a quarter of the firepower needed in a typical recession because its key interest rate is so low and its bond-buying program is likely to prove less effective now.

Therefore, the government should be more explicit about how it could pump money into the economy in a downturn and revisit its tax and benefit rules to cushion households against income shocks which have been weakened since the last slump.

The think-tank also called for a pipeline of shovel-ready infrastructure projects which could be sped up in a crisis and it said direct payments could be made to households if necessary.

“Now is the time to plan for the next recession – because the one thing we know for certain is that it will happen,” James Smith, Research Director at the Resolution Foundation, said.

“The UK today faces the highest recession risk since the financial crisis, and lower-income households are now more exposed to a downturn than they were back then.”

The Resolution Foundation urged Britain to go beyond tweaking its existing toolkit and to consider the case for raising the BoE’s inflation target above its current level of 2% although it conceded such a move would be challenging to carry out.

Britain’s new finance minister Sajid Javid last week announced the biggest increase in day-to-day spending in 15 years, a move widely seen as part of Prime Minister Boris Johnson’s push for an early election.

Javid has also said he will review the country’s fiscal rules which Johnson has suggested could be relaxed to take advantage of record-low borrowing costs.

Writing by William Schomberg; editing by Clare Fallon

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