Financial advisor Simon Gibbons runs the rule on the struggling British economy.
THE Office for National Statistics recently released the figures for the first quarter of 2012, with negative growth for the second quarter in a row, meaning we’re technically back in recession.
Hands up, who was surprised? If you were, it seems you were in the minority – not even the markets or the pound seemed to react very much to the news. The politicians seemed to enjoy it though, as it gave them more material to pontificate with.
There’s a strong wave of feeling from many quarters that too many cuts have been made, which has stifled the amount of money available for investment to stimulate the economy – and there’s a lot of truth in that. The only problem is that we really do need to make cuts; the UK is one of the most highly leveraged economies on the planet and, if the ratings agencies feel we haven’t got a handle on reducing our debt mountain, they’ll downgrade us. This would put up the cost of our borrowing immensely and plunge us into a whole world of hurt. Printing money would only offer limited protection, and we could soon be in the same position as Greece. So you can see why they’re keen to keep making the cuts.
But with America apparently on the mend, what are we doing wrong? Meddling. We have governments that love to meddle. Finances and economies have natural cycles of ups and downs and, left to their own devices, will correct themselves. For example, America’s mortgage system is different to ours so they couldn’t meddle like us; this lead to a sharp decline in property prices and then a natural bounce.
As our property prices started to fall the politicians meddled to catch the fall in a net.
This has meant it hasn’t hit the ground and therefore can’t bounce naturally back up. It’ll hit the ground eventually, but it’s likely to be a long, protracted process.