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MoneyEconomic policy has left UK at risk of ‘unnecessarily painful recession’

12:20  09 september  2019
12:20  09 september  2019 Source:   msn.com

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The UK ’s economic policy has left the country at risk of facing an “ unnecessarily painful ” recession , according to a new report. The Resolution Foundation said the Bank of England has “blunted” the tools it needs to use in order to make sure the UK is prepared to cope with a possible

UK economic output shrank by 20.4% in the second quarter of 2020, the worst quarterly slump on record, pushing the country into the deepest recession of any major global economy .

Economic policy has left UK at risk of ‘unnecessarily painful recession’ England, London, City of London, Bank of England and Threadneedle Street (Photo by: Dukas/UIG via Getty Images)

The UK’s economic policy has left the country at risk of facing an “unnecessarily painful” recession, according to a new report.

The Resolution Foundation said the Bank of England has “blunted” the tools it needs to use in order to make sure the UK is prepared to cope with a possible recession.

Fears have escalated that the UK could enter a recession this year after the economy contracted in the second quarter on the back of a sharp fall in manufacturing and construction output.

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Britain has entered the deepest recession since records began as official figures on Wednesday The US has its own method of assessing recession , with the National Bureau of Economic Research's Confirming the onset of the deepest recession since records began, the ONS said the decline in the

Forecast slump in GDP of 11.5% will exceed falls by France, Italy, Spain and Germany.

But researchers at the London think tank said that the UK is “not recession ready” due to current economic policy.

Mark Carney, governor of the Bank of England, has continued to keep interest rates low despite calls from some economists to increase rates.

Last month, the central bank cut its outlook for UK growth, predicting an expansion of 1.3% this year and next, assuming there is a smooth Brexit.

Economic policy has left UK at risk of ‘unnecessarily painful recession’ © PA Wire/PA Images Bank of England Governor Mark Carney speaking during the Bank of England's financial stability report at the Bank of England in the City of London. (Photo by Matt Dunham/PA Images via Getty Images)

The Resolution Foundation said, in its latest report entitled Recession Ready, that the low level of interest rates means the bank will not be able to offer the same level of support in the next recession as it did in 2009, when quantitative easing (QE) was also used to support the economy.

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The risks facing our economy have little to do with the availability of liquidity in the financial sector, and all to As well as being of limited effectiveness, ultra-loose monetary policy has come with harmful Responding to a potential recession by risking financial stability with more private debt hardly seems

The economic pain caused by recessions , though temporary, can have major effects that alter an economy . This can occur due to structural shifts in Some theories explain recessions as dependent on financial factors. These usually focus on either the overexpansion of credit and financial risk during

The report claims that cuts in interest rates and increased QE could only provide around a quarter of the support to the economy needed in even an average recession.

James Smith, research director at the Resolution Foundation, warned that lower income households in the UK are “more exposed” to an economic downturn than before the 2009 financial crisis.

Economic policy has left UK at risk of ‘unnecessarily painful recession’ © 2018 SOPA Images KRAKOW, POLAND - 2018/09/12: British pound bank notes are seen with an European Union flag on the background. (Photo by Omar Marques/SOPA Images/LightRocket via Getty Images)

The UK currently faces the highest recession risk since the crisis a decade ago, the report said.

Mr Smith said: “As well as trying to deliver good times, we should be making sure we are able to respond effectively in bad times to minimise the pain of the next downturn. But the UK today is not recession ready.

“The Bank of England in particular used powerful policy tools to fight the last great recession – from slashing interest rates to injecting billions into the economy via quantitative easing.

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Stocks have tumbled again in New York, and across Europe and Asia, as Saudi Arabia’s oil price war adds to panic over the coronavirus crisis. This credit risk is rippling through corporate bond markets, and raising the chance of financial contagion .

A recession is when the economy contracts for at least two quarters. There's a drop in real GDP Stagflation was caused by President Richard Nixon's economic policies , which mainly took the When there is a recession , the stock market could enter a bear market indicated by a decline of 20

“But ultra-low interest rates now mean these tools are blunted. Our plans for fighting the next downturn have not been sufficiently updated to recognise this reality.”

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Economic policy has left UK at risk of ‘unnecessarily painful recession’

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