1141 votes cast, result on 29 November.
To begin by defining some terms, economists identify a
‘recession’ as two or more quarters of negative economic growth.
This means that the economy has shrunk for at least six months.
While the idea of a ‘double-dip recession’ has been mentioned in
various places, there is no agreed definition of what the term
For example, what period of time would need to have elapsed
before two recessions were considered separate events?
Generally, the impression is that a second ‘dip’ would need to
occur with 18 months to two years of the first ‘dip’ to be
considered a ‘double’.
So what are the prospects for the UK economy and will there be a
All the current indications are that economy will not slip back
into recession in the near future. While various bodies, such as
the British Chambers of Commerce and the Office for Budget
Responsibility have lowered their predictions of economic growth
rates for next year, no-one is predicting a return to
Therefore, it is unlikely that a double-dip will occur.
While the chances of a double-dip recession look small, this
does not mean that the economic situation will be ‘rosy’.
The projected growth rate for 2011 is roughly 2.0%, which
compares to a long-term trend growth rate in the UK of 2.5%.
While the difference may not seem large, it is big enough to
mean that we will not see a significant improvement in economic
conditions over the next twelve months.
If this below trend growth continues, the UK may face similar
problems to those currently being experienced by Japan. Japan
suffered a recession at the start of the 1990s as a result of the
“Asian Financial Crisis”.
While the Japanese economy eventually returned to positive
growth, the growth rate was much lower than the trend value. This
resulted in what became known at the “lost decade”, with small
increases in employment and static living standards.
The recent economic crisis has made the position more difficult,
with the Japanese government having run out of ways in which to try
and stimulate the economy.
So while the chances of a double-dip recession are small, the
UK’s economic future may not see a quick return to significant
The unknown factors here are: the impact of the increase in the
basic rate of VAT in January 2011, and the effect of the public
spending cuts announced in the Comprehensive Spending Review.
Department of Finance, Accounting & Business
University of Wolverhampton
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