Finding a Way Out of the Maze

So, the UK is (provisionally) out of recession, but all that means is we've found our way to the centre of the maze, we've still got to get out of the other side. In the process we might find ourselves heading back towards the middle or, in other words, dropping back into recession. This is known as a double dip recession, and the most likely time for this to happen is in the current quarter.

Of course the probable date for the general election is 6 May, the date that is scheduled for the local elections. With this in mind, it would be a disaster for the government if the country did slip back into recession in the first quarter of 2010, as the news would come around two weeks before the likely election date.

You might ask why the UK would drop back into negative growth after returning to positive growth before Christmas. There are, of course, a number of contributing factors to this ...

The first quarter is traditionally the one where people spend less money as they need to pay off the credit card from Christmas. VAT reverted back to its 17.5% rate on 1 Janurary; although not a significant rise in itself, many had brought forward spending to avoid paying more and it's also put 3p on a litre of fuel. The Bank of England is likely to have to raise interest rates in the next month or so as inflation is set to shoot up because of a boost in house prices (and also because of VAT) meaning people will spend even less. Finally, temporary Christmas jobs have obviously ended, so unempolyment might well increase in the near future.

Do you think that if the economy is looking dodgy in a few weeks time we might find ourselves with an early April election to avoid the figures scuppering Gordon?

JR