When Will The Next UK Recession Arrive?

Posted by admin on April 7, 2010 in borrowing, gordon brown, public borrowing, recession, uk economy | Short Link

That is a leading question, I know. But with the announcement of a general election being called by Gordon Brown for 6th May, the prospect of real financial change is looming.

Both major parties seem to have been pre-campaigning on spending cuts, fiscal restraint and responsibility. But only one of the parties is in power and could actually be doing those things right now.

I suspect that the reason for New Labour being so slow to get the scissors out to public spending is political. If things are slow in the economy now, how much slower could they be if they used some restraint? Slashing budgets and spending over the preceeding 12 months would probably have made the recession even deeper and would not have helped their re-election prospects.

So the political imperative has been winning over the economic. For now.

But if the Conservative Party are elected with any level of majority, they will need to start wielding the scissors – and be seen to be doing so – immediately. This could easily be the start of the next ‘leg’ down in this recession. With public sector borrowing so high, this needs to have started months ago, but better late than never.

This might sound ‘doom and gloom’ of me, but the prospect of a devaluation of sterling, substantially increased inflation or a full-blown default on sovereign debts are not that unreal. Somehow, the UK needs to start dealing with it’s huge financial deficit before things are too late. They might be too late already, but there probably still is time to act and have a meaningful influence.

The real problem scenario lies in a hung parliament. If that were the case, the Liberal Democrats would suddenly become the most important people in town!

Broadly speaking, I quite support the occassional hung parliament. One problem with government – to my own slightly libertarian eyes – is that it always feels the need to act. But often times, doing nothing would probably be just as effective. The level of action is merely to give the impression of being vital and to justify an existence.

So when a hung parliament slows down the level of action, that can be a good thing for individual liberties and responsibilities.

However, at a time like now, a hung parliament would be a financial disaster for the UK. The one silver lining would be that Vince Cable would be propelled into a front bench position. Otherwise, any delay on financial restraint could be crippling in the long-term.

What are your thoughts? Do you have any insight into how bad the UK economy really is?

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