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Friday, January 25, 2013 7:11 PM

UK Headed for Triple Dip Recession? Impact on EU Exit Vote

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There is much talk of a triple dip recession in the UK. It depends on how you define it. If you call a recession two consecutive quarters of decline in GDP, with any quarter of positive growth ending the recession, then answer is yes.

Here is a chart from the Telegraph article UK heads for triple dip as GDP contracts 0.3pc to consider.

Double Dip?

The blue rectangles are mine. I see two recessions not three.

With 9 quarters in between recessions, one might ask "Is this even a double-dip setup?" I suggest yes, but there is no clear agreed-upon definition of how many quarters can be between recessions to call it a double-dip.

From the Telegraph ...

The official figures were the fourth quarter of negative growth in the last five and mean that the UK flatlined for last year as a whole – posting zero growth.

The economy is smaller than it was in September 2011 and still 3.3pc below its pre-crisis peak.

Making matters worse, there was scant evidence in the data that the economy is rebalancing from consumption to manufacturing. Output by Britain’s factories fell by 1.5pc in the quarter and by 1.8pc for the year as a whole – the first annual decline since 2009.

Howard Archer, economist at IHS Global Insight, described the situation as “dire” and added: “We believe the economy is essentially flat at the moment. We suspect that GDP will not return to the level seen in the first quarter of 2008 until the first half of 2015 – a gap of seven years.”
Dire Situation

The article notes that 4th quarter GDP was impacted by an unusually long maintenance period for North Sea crude production. However, even if one subtracts that effect, GDP was still negative.

The chance UK GDP will not return to the 2008 level until 2015 is indeed a dire setup.

Impact on EU Exit Vote

This economic mess puts a lot of pressure on Prime Minister David Cameron by the Labour Party , for Cameron to abandon austerity measures.

Bear in mind that Cameron has promised to hold a referendum on a UK exit only if he wins reelection,  and even then only after he renegotiates the EU treaty. Simply put, Cameron has not promised a damn thing. It's nothing but an election ploy, that will likely backfire.

Moreover, if the economy remains sour as I expect, Cameron is likely to lose the next election and the UK's chance to quickly and easily get out of the EU (which the UK should do in my opinion), will go right down the drain.

Mike "Mish" Shedlock

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