The United Kingdom is the most recent country to receive a warning about an upcoming recession and according to a new report, they are not prepared to face it. The stark message, which comes from the independent UK Think Tank Resolution Foundation, warned that Britain was unprepared to face a recession in the next year, which could spell disaster for the country’s economy.
No Wriggle Room For BoE
The report also emphasised that the Bank of England, which was instrumental in pulling the economy back from the brink during the Credit Crunch, would likely not be able to provide the same level of support as it had due to staggeringly low-interest rates.
A common tactic to reverse the effects of a recession is to lower interest rates to stimulate spending- but it may not be as successful in our current scenario. Currently, the Bank of England’s interest rate policy is at just 0.75%.
Stimulate Economy
Of course, lowering interest rates isn’t the only way to stimulate an economy. The UK was one of a few major economies that used Quantitative Easing during the financial crisis in 2007. This process of injecting liquidity into a flailing economy was used alongside lowering interest rates to steady the volatile British economy in the wake of the Lehman Brothers collapse.
However, the same tactics may not be viable now, just a decade later. Because interest rates have been below 1% for nearly a decade, quantitative easing becomes less useful the longer the rates stay down.
Researchers from the foundation cautioned that these old methods would only provide approximately a quarter of the support the UK economy needs to prevent a recession sinking into a depression.
A recession is typified by two-quarters of zero or negative economic growth and the UK economy has consistently been struggling to grow since the beginning of 2019.
Moreover, a decline in general economic activity has been widely seen across all markets: Brexit and political uncertainty have slowed business activity significantly. Just this month, reports warned that the services industry, which makes up 80% of Britain’s economy, stalled in August and manufacturing ground to a halt over the last quarter due to business uncertainty.