UK RECESSIONS AND RECOVERY

UK Recessions and Recovery



UK Recessions and Recovery

Introduction

Britain's economy contracted even more sharply during the recession than previously believed and its recovery so far this year has been even more anaemic, according to official data on Wednesday that incorporated new information and methodology into the calculations.

The Office for National Statistics reported that output fell by 7.1 per cent from its pre-recession peak at the end of 2007 to the trough in the second quarter of 2009. Before the revision the fall had been estimated to be 6.4 per cent. Much of the downward revision reflects the fact that the nation's private, non-financial companies saw much sharper drops in profitability in 2008 than had previously been reported. Because the decline was so much steeper, recovery actually began a bit earlier than believed in the third quarter of 2009, not the fourth.

The recession, according to Peter Lee, statistician at the ONS, “was sharper, steeper and deeper,” than had been believed. Moreover, GDP for the first and second quarter of 2011 were each revised downward. The new data incorporate important changes to methodology including a change in the way inflation is taken into account and reclassifications of industries.

The latest data also showed the toll that economic activity is taking on households; household consumption fell by 0.8 per cent between the first and second quarters of 2011. Over the past year, consumption has fallen by 1.7 per cent.

Discuss the main features of this graph.

The graph present states that the profile of recession and recovery. The economy is on the point of turning round. But while the start of recessions is typically defined as two successive quarters of falling output (Gross Domestic Product or GDP), there are few if any agreed definitions of when recessions comes to an end. Economic growth measured by changes in GDP is likely to resume in the fourth quarter of this year. But it will on past experience take between three to four years from the start of the recession for GDP output to recover to its pre-recession level.

Labor markets take even longer to return to their prerecession state - in past recessions it has taken eight to ten years to recover to the previous level of employment. By the former measure, we can say the economy has recovered by 2011 to 2012; by the latter criteria full recovery in the labor market will not be achieved until 2016 to 2018. The chart below produced by the National Institute for Economic and Social Research (NIESR) shows ow this recession so far compares with the recessions of the 1980s and 1990s and with the Great Depression of the inter-war years. The economy contracted more in the first twelve months of this recession than in any of the previous recessions as shown below. This illustrates the immense danger we were in as recently as twelve months ago: the downturn could easily have turned into an even worse Great Depression. The sheer scale of the monetary and fiscal stimulus ...