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Down Goes Britain: The UK Economy Tumbles Deep Into Recession

The economic crisis that is sweeping Europe is starting to hit Britain really hard.  Over the last couple of years economists have been warning that we can’t let the “contagion” spread from troubled nations such as Greece and Portugal to the rest of Europe.  Well, it is too late for that now.  Spain and Italy are coming apart at the seams at this point, and even “stronger” nations such as the UK and France appear to be deeply troubled.  According to numbers that were released just this week, the UK economy has now contracted for three quarters in a row.  During the second quarter of 2012, the UK economy shrunk by 0.7 percent.  That was a much larger contraction than the 0.2 percent contraction that economists were forecasting.  At this point we have got a definite trend going.  During the fourth quarter of 2011, the UK economy shrunk by 0.4 percent.  During the first quarter of 2012, the UK economy shrunk by 0.3 percent.  And now in this latest quarter the contraction of the UK economy appears to be accelerating.  This economic downturn in the UK is being called “the longest double-dip recession for more than 50 years“.  So will Britain soon look like Greece and Spain and Italy or will it be able to pull out of this nosedive in time?

The UK construction sector was hit particularly hard during the second quarter.  It contracted by 5.2 percent, which was the biggest decline since the first quarter of 2009.  Consumer confidence has reached a historic low in Britain and economic gloom is seemingly everywhere.

So what does the future hold for Britain?

Unfortunately, things do not look promising at all right now.

At this point, the budget deficit of the UK government is still about 8 percent of GDP, and British politicians are promising to reduce that significantly.

That means that more austerity measures are coming for Britain and less government money will be flowing into the economy.

So the economic slowdown is very likely to get even worse.

But of course we have been seeing the same kind of thing happening all over Europe.

Economists are warning once again that Greece is on the verge of declaring bankruptcy.

On Tuesday, the Telegraph ran a story with the following startling headline: “Debt crisis: Greece to run out of money by August 20“.

Haven’t we heard this before?

Yes, we have.

And every time, European leaders have gotten together and “fixed” the problem.

But of course they didn’t really fix anything.  They just kicked the can down the road a little while and things just kept getting worse.

At this point the Greek economy has been in a depression for several years.  In fact, the Prime Minister of Greece is now even openly using the word “depression” to describe the state of the Greek economy.

So just how bad are things in Greece right now?

It is being projected that the Greek economy will contract by a total of 7 percent during 2012.

Ouch.

But Greece is not alone.

Other southern European nations are on the exact same path that Greece is on.

For example, Italy is rapidly becoming a gigantic mess as well.  The national government is drowning in debt, the economy is in recession and today came a warning that 10 major Italian cities are on the verge of bankruptcy….

The cities at risk of running out of money include Naples, Palermo in Sicily and Reggio Calabria, on the toe of the Italian boot, according to the Italian press.

“The situation is becoming worse by the day,” said Graziano Del Rio, the president of a national association of municipal councils.

The warning came just days after Mario Monti, the prime minister, expressed fears that Sicily, which has a high degree of fiscal autonomy, was on the brink of a default.

But the country making the biggest headlines this week has been Spain.  Spanish bond yields have been soaring, the Spanish stock market has been crashing, the Spanish banking system is on the verge of collapse and now regional governments all over Spain are coming forward and asking for bailouts.

As the national government attempts to impose even more austerity measures on the Spanish people, violent protests are erupting all over the country.

You can see footage of some of the recent violence in Spain right here.

So why is all of this happening?

Well, the truth is that this is not a liquidity crisis.  If it was, the central banks could flood the system with money and solve the problem.

No, what Europe is facing is an insolvency crisis.  There is way, way too much debt in the system and it is inevitable that an “adjustment” is going to happen.

A recent Marketwatch article detailed how the global debt bubble has continued to grow even in the midst of the economic problems of the past few years….

Balance sheets of major central banks have increased to $18 trillion from around $6 trillion, reflecting an unprecedented 30% of global gross domestic product.

Mr. Economy is now addicted to monetary heroin. Increasing doses are necessary for the patient to function at all.

Mr. Economy has not made the changes necessary for a return to full health. He seems to have taken rock star Steven Tyler’s advice: “Fake it until you make it.”

Borrowing levels remain unsustainable. Debt levels for 11 major nations have increased to 417% of GDP in 2012 from 381% of GDP in 2007. Debt has increased in Canada, Germany, Greece, France, Ireland, Italy, Japan, Spain, Portugal, the U.K. and the U.S.

These debt levels are not sustainable.

A collapse is going to happen.

Hopefully the collapse will be at least somewhat orderly, but there is also a good chance that it could be completely chaotic.

Some that have analyzed the situation are very pessimistic at this point.  For example, the following is from a recent article by Graham Summers….

In simple terms, today we are facing a Crisis that is far, far worse than 2008. Before it ends, it is quite possible that we will see the entire Western Financial System collapse and a new system put into place.

This will mean:

  1. Many major banks disappearing, as well as numerous potentially lengthy bank holidays (think Argentina in 2001)
  2. Multiple sovereign defaults as well as broad economic contractions and their commensurate unemployment/ civil unrest/ erasure of retirement accounts/ pensions (this process has already begun in some US municipals, e.g. San Bernandino and Stockton California as well as Harrisburg Pennsylvania).
  3. Possibly new currencies being introduced or new denominations of currencies (say one new unit being worth 1,000 of the old one)
  4. Massive wealth destruction to the tune of tens of trillions of Dollars (think MF Global i.e. the money is gone… only systemically… in fact we just had another such instance with PF)
  5. A global contraction that will result in new political/ power structures being implemented as well as the breakup of various countries/ unions.
  6. Very serious trade wars to begin (see Obama’s recent attack on China) and very possibly a real war.

Many Americans do not pay much attention to what is going on over in Europe because they do not believe that it will affect them much.

But the truth is that Europe has a bigger population than we do, a bigger economy than we do, and a much bigger banking system than we do.

The global financial system is more interconnected than ever, and what goes on over in Europe is going to have a dramatic impact on the United States.

In fact, already there are a whole host of signs that the U.S. economy is starting to tip into another recession.

So let us definitely hope for the best, but let us also get prepared for the worst.

A great storm is on the horizon, and it would be quite foolish to ignore it.

  • Cinderella Man

    You would have to have complete ***** for brains if you didnt pay attention to Europe. It would have been just as dumb for them not to watch how the subprime crisis played out over here. I am convinced that this year is it. This is what we have all been watching and waiting for. When I keep seeing major events unfold on a nearly weekly basis we know the sand is falling faster out of the hourglass. So now the Brits finally admit there is a problem. Hello? Worldwide depression? Not just a greek thing anymore is it? I cant wait. I want to see the crushed faces of the wealthy and super elite when all their money is gone and they are just like the rest of us. Funny thing is they have no survivor instincts and they will end up freezing and starving to death and all those poor people they stomped on will be stomping on them!

    • Eisenkreutz

      Youre dreaming. Have you seen a single arrest of any of the elite? Think theyre gonna lose anything in the collapse? As long as the people remain stupid this will continue.

      • http://john101b.ipage.com/instructions/pictureframing.html Jack

        It seems the American public is it’s own worse enemy and continues to put Hollywood and money above good economic policy.

    • Airborne71

      C M , Do you really think that the rich don’t have a clue as to whats going to happen when the SHTF ? Let me give you a hint brother , they didn’t get rich because they were stupid ! Any body with half a brain can see whats going to happen and so do the rich. They have or are in “Prep Mode ” right now , I have no doubt that the most of them have there ducks in a row even now. More than likely they have a place to run to and lay low until things get better or what ever . Oh yeah a few are stupid enough to ignore the warning signs but for the most part they will be preped and ready like most of us here who are pereped .

  • McKinley Morganfield

    I think we’re not headed for another recession simply because we had no real recovery from the 2007-8 drop. A real recovery means new businesses are formed and established businesses expand and hire. The only ‘recovery’ has been in equities which has been created by the FED. IMO we’re headed for a prolonged depression and a reset of the monetary-financial system. The question is will we collapse like Argentina or Zimbabwe?

    • http://john101b.ipage.com/instructions/pictureframing.html Jack

      I think the collapse of the world economy is inevitable now and the only way we can stop the slide into oblivion.

  • Colin

    The economies of the US and Europe have been interconnected since our country’s inception. What happened in one place had an effect on the other place. I don’t know why people are surprised by this.

    I am watching what is happening in Europe with trepidation.

    I would like for you, Michael, to read this article. This article was released on July 24. Moody’s has downgraded the outlook for Germany’s credit rating, which is Aaa, from stable to negative. This country isn’t the only one affected – Moody’s did the same for Luxembourg and the Netherlands. The reasons are (1). the current economic condition of the euro zone and (2.) that countries in this zone will have to do more to prop the ailing nations from collapse.

    http://money.cnn.com/2012/07/23/investing/germany-moodys/index.htm?iid=HP_LN

    • Michael

      Yes, things definitely are not looking good.

      Michael

  • A Dodgy Bloke

    Anybody who reads the English papers on-line regularly will can’t help but come to the conclusion the UK is slowly unraveling, socially, politically, and economically. Every other day there is a new NHS (National Health Service) horror story. Violent crime is getting to be an issue and the number of young people on the dole (Welfare) is very high. If you look at it the UK has more in common with Greece than the US. Out of control Unions a massive public sector, national health care, (That isn’t working) and a various government handouts.
    It simply isn’t sustainable add the cost of the Olympics the UK in a year or two will be staring down the same gun barrel as Greece, Spain, Italy, and Portugal and eventually France Belgium Japan and the United States. The only reasion I left China off is because nobody knows the real economic numbers coming out of China look up Chinese Ghost Cities, that is called misallocation of resources.
    The Welfare State is dying it’s happening in other places it will happen here. Once food stamps, Section Sight, Medicaid and cash payouts, Medicare Disability go bye, bye and it will we will have our Greek moment.

    • Encyclopediadramatica

      Chinese ghosts cities exist because the “west” isn´t paying much of what it buys from China, only promises to pay more later.
      Then, the “west” criticize Chinese gov for its monetary policies while hodding its real rates of inflations.
      .

      They export but it simply isn´t that profitable, much less profitable than a decade ago.´Borrower prosperity is lender poverty

    • Guido

      Yeah, I’ve read they need to maintain 8% growth, no matter what, to head off civil unrest and economic collapse.

      They’ve traded everything for a “growth at all costs” program. I’ve read college students are being forced to work over holidays and weekends in factories for little or no pay. Those who refuse are denied their degree and kicked out of school. Ghost cities. Massive exploitation of resources, regardless of actual need. They’re turning into a nation of people doing make-work jobs just to keep their heads above water. Nevermind the intense damage to their environment, the growing disparity between the urban East and rural West, and growing ethnic strife. China’s got big problems brewing…

  • Guido

    Interestingly, ZH pointed out the banksters have found a new way to try and conceal the Italian collapse-they’re listing 10 individual provinces of Italy as being in default, not the country itself. They can try to play 3 Card Monte with us all they want, but eventually the bill is going to come due.

    I guess the system would have a better chance if people could believe in it, but with the governments and the major banks rigging the system for their own benefit, i.e. the LIBOR debacle, it’s hard to have any faith in the system at all. It might not be so bad if they at least tried to hide their contempt for us.

    • Kevin

      Guido

      “It might not be so bad if they at least tried to hide their contempt for us.”

      Point well made. What I find interesting is for decades they operated by stealth as much as possible. Now they’re more overt. I’m assuming that over time with their political control increasing they now feel that there is no need to hide their actions because the voting public of the various Democracies / Republics have been for all intent and purpose politically neutered. This coupled with what I think is a pending collapse which would get them to sacrifice stealth for speed is the motivator behind them “coming out of the closet” so to speak. Their belief in virtual absolute control coupled with a last minuet wealth grab (before their is no more wealth to grab) is a tad frightening. They say desperate people do desperate things with respect to the masses thrust into poverty. I think that might also apply to TPTB is they feel they might loose control.

  • mondobeyondo

    Hey, at least they have the Olympics to distract them for the next couple of weeks or so. It’s not ALL bad…

    • Eisenkreutz

      Yes indeed. Useless eaters knock yourselves out with bread and circus.

    • Alasha

      gulp

  • lee

    It’s slowing down faster all over, Germany had horrible economic numbers recently too for being the European economic and production powerhouse.

    I am not suprised. I have been convinced for some time now; just as government officials can’t estimate any budget worth a darn; they can’t forecast economic numbers either. It’s either that, or putting out wishful thinking publicly; which is even worse.

    If anyone wants to keep up with daily world economics, Mike Shedlock has the best site going. (If I shouldn’t reference other sites, I apologize; but he like your site; is one of the best.)

    • Michael

      Please feel free to reference other sites. I am not selfish. :)

      Michael

  • Uncle Sam

    Mish Shedlock is great, I have read him for years. Keen eyesight and always fresh.

    Michaels two sites are daily reads as well.

    Keep up the good work and spread the truth.

  • Gary2

    as has been said by me and others many times–austerity does not work. We need a bigger stimulus paid for by taxing the rich hard.

    • Kevin

      Gary2

      So we buy more things manufactured in overseas until the money runs out? Short of salesmen, warehousemen, and truck drivers where would the jobs be created with such a stimulus?

      Show the self sustaining capability your plan has.

  • http://www.infowars.com Anon

    CONTACT Sen. Harry Reid on H.R. 459′s Passage (327-98) – TODAY!

    I did! Here is the text of my message:

    “I was just informed, that the House voted, 327-98, on H.R. 459, & AUDIT THE ‘FED’ passed! I was also just informed, that ‘Sen. HARRY REID is refusing to put Audit the Fed up for a vote in the Senate.’ And, to ‘Please contact his office today and tell him to support AUDIT THE ‘FED’ and allow for a Senate vote!’

    327-98, Senator, is a CLEAR MAJORITY. THE PEOPLE have spoken. Question: Do you represent THE PEOPLE? You may wish to think about this question when it comes time for your re-election”

    CONTACT SEN. HARRY REID TODAY! LET’S FLOOD HIS EMAIL ON THIS ISSUE!
    (Feel free to Copy and Paste the message above, if you wish)
    http://www.reid.senate.gov/contact/index.cfm

    Related News:

    Audit the Fed Passes the House! 327(Y)-98(N)
    http://www.campaignforliberty.org/profile/7788/blog/2012/07/25/audit-fed-passes-0

  • http://Survive2balive.com GA

    @ mondobeyondo. You are correct. Bread and circuses!

    It’s time to call a spade a spade and stop injecting money into a broken system. Its time for the big re-set. Pain now or more pain later. Pick your poison. Think I will order some more #10 cans.

  • Chris

    In many senses the UK economy should contract because for years the GDP figure has been significantly inflated due to the Bank of England supplying vast amounts of cheap credit to produce a fake economic boom. It therefore should follow that to return to normal and cut the deficit the UK economy should be expected to contract. The BoE and politicians have tried to cover this up by encouraging inflation to massage the GDP figures up nominally but even this has not worked 100%. If the BoE and UK politicians had been prepared to take the pain in 2008 and not try to prop up a vastly inflated asset bubble (mainly housing) it is possible that the UK may actually have been making a reasonably genuine recovery now. But either they were too gutless to do so or they had ambitions to completely kill the financial system with more debt because as it stands it looks like complete collapse will result.

  • Encyclopediadramatica

    During the second quarter of 2012, the UK economy shrunk by 0.7 percent.

    Does that account inflation?

    • Encyclopediadramatica

      I mean, the official inflation rate for the UK.

    • Michael

      No that doesn’t account for inflation, so the actual contraction was even worse.

      Michael

  • http://www.backdoorsurvival.com SurvivalWoman

    I have never claimed to be good at economics so I tend to evaluate the economy by using my own two eyes instead of theory. In recent discussions with my friend, George Ure, I have made the statement and asked the question: “So what happens if the entire world goes bankrupt?” A global class system? The emergence of a new super-power? I get a headache thinking about it.

  • LadyLiberty

    Down goes America also don’t kid yourself even the WSJ is now saying we are in a d-epression

    http://blogs.wsj.com/marketbeat/2012/07/25/do-two-recessions-equal-one-depression/

  • Keyns

    Well! This is truly going to happen.The economic system as we know it, is going against a default.The sad thing about all this is,that nobody,not Bernanke,not Draghi,and not even the Peoples Bank Of China,can do nothing about it.We are soon entering a new time,I Think.

  • gnasher

    There is an old saying that,”you can’t fool all of the people all of the time”,unfortunately that is patently wrong.The British media like most of its worldwide affiliates are owned, operated and controlled by that small portion of humanity that decides what information the peasants are allowed to know.I have contact with only one other person that even suspects we are being led by the nose into slavery.
    As far as the vast majority are concerned, they are in total denial that there is a real problem.They are so busy trying to keep the wolf from the door that prepping and planning for anything but the next edition of their favourite soap or sports event doesn’t even come into the equation.

  • Michael Todd

    I love you Britain, home of my ancestry! You have forgotten your first love, who is your God! So judgement has come upon you! Repent and turn back to the God who made you great and protected you during WWII! Please!
    Mike Todd
    U.S.A

  • http://stopneocons.bravejournal.com Winston Smith

    bet many Britons will wonder “why didnt we listen to UKIP when we had a chance”….

    • http://www.vdare.com TDK-180

      “bet many Britons will wonder “why didnt we listen to UKIP when we had a chance”….”

      Or to BNP. Or Enoch Powell.

      As the saying goes: “You reap what you sow.” Now wait for “the grim reaper”…

  • http://stopneocons.bravejournal.com Winston Smith

    apparently, nothing will stop the UK thought from pushing vaccines: http://www.guardian.co.uk/society/2012/jul/25/parents-administer-children-flu-vaccine

  • guest

    Complete greed took over ever since Margaret Thatchcer through to Gordon Brown. Its no use saying why didn’t we listen to Mr Foot or Mr Ben, UKIP or God, the problem is people got greedy too and purchased things they didn’t really need and way above their means too! Yes it was made available but didn’t people reckon on paying it back. Banks were always there to make a profit and interest rates were inevitiable. People buy cars and the finance is worked out so that you can pay, when you took out your morgage at 3x one wage and 1x the other at a 100%, how did your figure you will pay it along with all your other commitments? Mostly everybody had a reasonable good time bragging on their neighbours about what they have and now the bottom has fallen out and their complaining. How could so many be so foolish and all at the same time without even wondering where it was coming from or what financial collateral backed it up!!!
    Most of the properties bought were so old and needed so much fixing that it was hardly worth it. Family sized maisonettes were pulled down and pokey little houses built to a much smaller density were put in their sted, it seemed a gynormous waste of time, especially up north with perfectly good house left derelict and vandalised after the coal mines were shut down, leyland etc.
    Then after privitisation- whole sectors of employment went abroad for cheap labour. Now we have an aging workforce and because of a poor education and too many talented running abroad to fun and frolick there is nobody worthy to pick up the mantel any where. Plus there is nothing new or original and people are bored.

  • Relatively anonymous.

    “The economic crisis that is sweeping Europe is starting to hit Britain really hard.”

    Sweeping Europe? Really? Well, I can’t say I understand much of this shouting about “economic crisis” that’s been going on the past five years or so. Quite frankly, I haven’t noticed anything that resembles an “economic downturn”. My personal economy is better now than it has ever been. Unemployment and inflation does not seem abnormal and the interests are in my opinion ridiculously low. Whilst prices for buying and renting homes are record high and yet still rising (something which irritates me a great deal). Maybe this “crisis” is just a hoax or myth, like AGW turned out to be?

    • HecatesMoon

      Relatively Anonymous,
      I am here in America, and in 2008 my boyfriend and I felt no real economic pain. We were doing great. In his line of work, there are dry spells, and we went through them, but ultimately we were saying the same thing, “What recession??!!”
      Something WAS happening though and has become more and more noticeable each year. Last year was the real slap in the face as those dry spells are starting sooner and sooner, and lasting longer and longer each year.
      Last year we were figuring out how to feed five people on $90 for a week and one week it was $40. That dry spell started in September and lasted through March of this year.
      Just because you don’t feel it, doesn’t mean it isn’t happening. Just because you haven’t been touched by it, doesn’t mean it isn’t real. You personally may be secure throughout with little suffering or it may creep up on you like a slowly rising tide.
      Look outside yourself, as we should have done. Had we done so, we may have been way more prepared to face the increasing dry spells and to face what is coming next.

  • A. S. Mathew

    I saw a cap with the writing ” JESUS MY MIGHTHY
    LORD” in a store, which was rarely found. So, bought it and kept at home. I was suffering with a chronic skin problem on my face due to the Sun rays, did wear a big cap all the time when went outside. One day, while praying for the healing of my skin problem, the Holy Spirit began to deal with me. Are you ashamed of me to wear this cap? I said Lord, I need a bigger cap and this cap won’t cover both sides of my face. The revelation came, ” you wear this cap to honor me, I will heal your skin problem, also I will teach you a great lesson that America doesn’t love me any more. I began to wear, within a day or two, I was totally healed of my skin problem and my skin at 67 turned like a young man’s skin. I wear this cap to the stores-when I travel, and even 1/1000 shows any excitement about JESUS name on my head. If I did wear this cap in India or China, more people in the minority Christian nations might have been farther responsive to see the name of JESUS. The people of Europe and the U.S. began to drift away from GOD, and they thought that they can handle their own problem by themselves, now GOD is teaching a big lesson. Unless and until, we turn to GOD and cry for our arrogance and foolishness in forsaking GOD, we are going to head into far serious problems in the days to come. In the last five or six years, many stores in the U.S. were afraid of putting Christmas decorations during the Christmas season, but celebrated as if an unimportant national holiday.
    But I was surprised to see the colorful Christmas decorations in the Gulf countries during the Christmas season, decorated one month before the Christmas season; they are Muslim countries. GOD is showing grace to them for honoring the birth of OUR LORD AND SAVIOUR JESUS CHRIST, BUT WE IN THE U.S. ARE ASHAMED OF HIM EVEN AT THE CHRISTMAS SEASON. WHAT A SHAMEFUL AND ARROGANT ACT!

  • A. S. Mathew

    While returning from India in 1999, I had a stop over in Bahrain. I met five ladies, over 50 years old from Holland; they were returning from Sri.Lanka (former Ceylon). When I plainly questioned to re-confirm what I was reading about the empty Churches and lack in GOD fearing among the Europen countries, I was terribly shocked to hear their united answer. They said,
    “we don’t need GOD’s help, we know how to handle our affairs”. I told them without fearing whether they get offened or not, one day you will be forced to seek HIS face for your deliberate negligence and disregard for the CREATOR. Those Europen countries like Britain-Germany-Holland, countries of reformation sent hundreds of missionaries to Africa and Asia, to the dark continents of healthens to tell about JESUS, and GOD honorned and blessed those nations. But, now GOD took the grace from those countries. The Europen countries and the
    U.S.A. are going to feel the greatest economic pains than any other nations of the world.

  • The Professor

    Interesting, the slightest whiff of anything US based releases a diatribe, but something about UK? not a single post?
    Are you all that self centred?