Ben Tattersall-Smith, Tuesday April 01, 2008
The panic in world financial markets is spreading - bringing with it fears of job losses, falling house prices and a prolonged economic downturn. We examine ten worrying signs that suggest the UK could be heading for a recession
Financial markets have experienced further turmoil this week. Tuesday saw Swiss banking giant UBS announce losses of $37.5bn (£18bn) while on Monday the Confederation of British Industry (CBI) this week issued a stark warning over the UK's economic prospects as it downgraded its growth forecast for the year.
Are we really heading for a period of recession? Economists define a recession as two quarters of negative growth - the effects of which can be felt in house price falls, job losses and soaring consumer prices. Opinion is divided over whether the UK will escape - recent research from US investment bank Lehman Brothers put the chance of the UK entering a recession at 35%.
Yet there have been some worrying economic developments over the past month. We examine ten of them.
1: Falling house prices
House prices have fallen for the past six months in a row - and are forecast to keep plunging. Analysts at Capital Economics predict UK prices could fall by more than a quarter over the next two years and mortgage giant Nationwide this week downgraded its annual price estimate downwards.
2: Weakening currencies
Sterling has fallen to record lows against the Euro - which means that traders believe that the UK is an unattractive place to invest. The US Dollar is also faltering badly - and the potential damage for economic damage could extend far beyond a more expensive holiday.
3: City redundancies
There may be as many as 10,000 job losses in the financial services in 2008, according to recent reports. Some of the biggest names in the world of finance have already cut their staff levels significantly. These cuts prove that the money men are seriously concerned about the economic situation - and could threaten employment prospects in other support industries.
4: Reduced growth forecasts
Chancellor Alistair Darling cut his forecasts for economic growth for this year by 0.25% in last month's Budget - to between 1.75% and 2.25%. The Confederation of British Industry (CBI) this week downgraded its growth forecast for the year to just 1.7%.
5: Continued sub-prime losses
The sub-prime crisis in America stems from mortgage providers taking too much risk and providing unsuitable people with loans who often went on to default on them. Swiss bank UBS have just had to write of £18.5bn in bad debts. Now banks everywhere are restriction how much credit they offer - and who they offer it to.
6: Share wobbles
Financial scares around the world have caused uncertainty on the stock markets. This has the potential to affect you not just if you own shares yourself but also if you have a private or company pension, as these are funded through stock market investments.
7: Global jitters
Negative reports have been coming out of countries around the world, ranging from places as diverse as Japan to Iceland. Japanese business confidence is falling while Iceland has seen falls in the value of its currency after its banks have had difficulties.
8: Consumer gloom
The latest Nationwide Consumer Confidence Survey reveals that public confidence in the economy is at its lowest point for a decade. Only one in ten people believe now is a good time to make a major purchase - and any downturn in spending could result in retail closures and job losses.
9: Inflationary pressure
Inflation is rising - the Consumer Price Index (CPI) level of inflation favoured by the Government is at a nine-month high of 2.5%. The relatively high level of inflation - driven by high oil prices - could help create further fears of a consumer slowdown that will serve to add additional recessionary pressure.
10: The media says so!
Constant talk of a recession in the media fuels fears that one may occur and dampens people's expectations for future growth in the economy. Images such as those showing people queuing at branches of Northern Rock last year could help convince people we're already in a recession.
