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More signs UK heading into a recession


10:30 am - January 4th 2012

by Richard Exell    


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Well, 2012 is starting where 2011 left off, with more signs we’re heading back to recession.

Some reports of yesterday’s Purchasing Managers’ Index results emphasise the fact that it’s up to 49.6 from 47.7 in November. But any result below 50 is a deterioration, albeit at a slower rate.

Markit, the organisation which produces the Index, notes that over the fourth quarter as a whole, this country suffered the worst fall in output since the second quarter of 2009.

We should be particularly worried that this is also true for new orders.

Other depressing news yesterday included the Financial Times’ survey of 83 economists’ expectations for the coming year (£) in which three times as many thought the economic outlook would deteriorate as that it would improve.

I was particularly struck by Deloitte’s survey of finance directors. Their view of their companies’ financial prospects headed south throughout last year and is now as bad as it was at the end of 2008:

After looking at this chart, it should be no surprise that

on average they see a 54% chance of the UK suffering a ‘double dip’. Most expect the period of weakness to be prolonged, lasting for more than a year.

What we should worry about is the fact that Chief Finance Officers are drawing the obvious conclusion that this is not a good time to invest. This is depressing, because most optimistic scenarios are based on the fact that companies have plenty of cash and the hope for an investment-led boom. Well, that doesn’t look likely:

In all of these reports and surveys it’s increasingly clear that worries about the Eurozone are freezing investment decisions and depressing confidence. Deloitte quote one CFO as saying

Everyone is waiting for something very bad to happen.

I’ve been careful to make the distinction between blaming the Euro for the collapse of UK output over the past 18 months – definitely wrong – and claiming that Euro problems aren’t going to have an impact; plainly they are.

Some commentators and politicians are going to claim that the dampning effect on investment and order books that we’re beginning to see now proves that none of our current mess should be blamed on the government. They’ll be wrong, but they may get away with it if the rest of us aren’t clear about the distinction between what has happened since the second half of 2010 and what seems likely to happen now.

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About the author
Richard is an regular contributor. He is the TUC’s Senior Policy Officer covering social security, tax credits and labour market issues.
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Reader comments


1. Leon Wolfeson

Oh come on. We’re already in a depression.

” Some reports of yesterday’s Purchasing Managers’ Index results emphasise the fact that it’s up to 49.6 from 47.7 in November. But any result below 50 is a deterioration, albeit at a slower rate. ”

Following in the rather old fashioned tradition that definitions matter, that statement that an expansion is a deterioration does not make a whole lot of sense to me. Clearly a PMI index reading of 49.6 following a 47.7 reading can’t be a deterioration. What are you using as a benchmark PMI if you say that is a deterioration, Q2 2006, Q4 2008, Q2 2010? It is a meaningless statement. How one would interpret a PMI index reading would be in the context of the previous PMI. Calling a reading below 50 a deterioration makes no sense. A PMI above 50 implies expansion in the economy and below 50 contraction. Therefore, a 49.6 number after a 47.7 number implies that the economy is growing from where it was in November. If July recorded a reading of 55 compared to a June reading of 52, and December 49.6. It just means that the economy is expanding slower in December compared to the previous month than it was in July. If you use July as your benchmark then you could say that the economy was deteriorating. However, you need to make the benchmark explicit otherwise it is meaningless. A PMI index figure increasing from one some way below 50 would always be interpreted as a bullish sign even if it is itself still slightly below 50.


Reactions: Twitter, blogs
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  3. Alexander MacDonald

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  4. sunny hundal

    Survey of finance directors finds 54% chance of UK suffering a double-dip recession. Where's Osborne's jobs plan? http://t.co/1pgVNINC

  5. Mark Hillary

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  6. McGinOxford

    Survey of finance directors finds 54% chance of UK suffering a double-dip recession. Where's Osborne's jobs plan? http://t.co/1pgVNINC

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  9. Ebony Dawn Marsh

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  10. Dominic Campbell

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  11. Linda Marric

    No shit Sherlock. RT @libcon: More signs UK heading into a recession http://t.co/L4YsmLQ7

  12. paulstpancras

    Survey of finance directors finds 54% chance of UK suffering a double-dip recession. Where's Osborne's jobs plan? http://t.co/1pgVNINC

  13. Hides Name

    Liberal Conspiracy – More signs UK heading into a recession http://t.co/OMZjWmV6

  14. Jeni Parsons

    More signs UK heading into a recession | Liberal Conspiracy http://t.co/orXJ9m2H via @libcon #otmp #occupylondon

  15. Janet Graham

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  16. Richard Exell

    Survey of finance directors finds 54% chance of UK suffering a double-dip recession. Where's Osborne's jobs plan? http://t.co/1pgVNINC

  17. vkellywallace

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  18. Owen Blacker

    RT @libcon More signs UK heading into a recession http://t.co/wegLyUQf

  19. Molly

    Good news everybody. "Signs we're heading for another recession." http://t.co/PHM9PTc1

  20. Jack Scott

    More signs UK heading into a recession | Liberal Conspiracy http://t.co/hh00OiOP. When will Osborne,Clegg + chums realise Plan A has failed?





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