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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

15 Sep 2008

'Shallow' recession predicted by CBI

The Confederation of British Industry are talking down the gathering hysteria about the coming recession by predicting a mild short-lived recession along the same lines as predictions already issued by the European based OECD.
Small shrinkages in the economy are expected, along with rises in unemployment, whilst acknowledging the rapid loss of momentum in the economy we are currently experiencing.

My question is whether this is the business world's attempt to talk up the economy along the same lines as the failed politicians attempt to talk it up. It is true to say that markets can be 'talked up' and confidence restored with well-chosen words, but you have to aim these well-chosen words at the right target. The target here is the public at large, the house-wives who have decided to spend less in the supermarket, the workers who have decided to make cut-backs by taking sandwiches to work, the student who has just decided that he can't afford to run a car after all. We are not talking about those that would normally listen to the rhetoric put out by either politicians or the CBI - If this is an attempt to talk up the market, then the target has been missed. People already firmly believe in the credit crunch, most think we are already in a recession, many unable to even percieve a difference between price rises and the credit crunch. The general public probably switches off at the name 'CBI' and definitely does not trust the words uttered by politicians.

The truth is that people will believe the evidence of their real income being diminished on a daily basis with rising fuel costs impacting every purchase, mortgages rising as discount rates expire have added to the burden of monthly outgoings whilst wages have remained static. There is no real reason to think that this sudden slow down in the economy will not continue as the reality bites, though you can see why the CBI and the Government would fear this happening.

The CBI is insisting that this is not a return to the 1990's where jobs were the big issue and demand slumped dramatically, but the truth is that nobody can really know how the market will react. My own feelings are that demand will certainly slump and jobs will surely be lost. The CBI acknowledge the speed of the initial reaction from the public, and like a self-fulfilling prophecy this drop in demand will have a real impact on jobs and sunsequently will lead to another wave of drop in demand. The impact of that drop will knock-on again and until we can quantify the gathering speed of this slump, there is no real way of knowing what the final outcome will be.

I would rather not be spreading doom and gloom, but I think there is a feeling that we can get out of this by ignoring it instead of facing up to the realities of the free market, and this attitude is short-term thinking firstly put forward by the Governments (both US and UK), and now backed up by industry. Maybe they are trying to reach those who don't believe there is a problem in the hope of encouraging them to keep spending, but it would be more effective to put ones' energy into preparing for the coming hard-times in my humble opinion.

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Is this the new Great Depression?
Credit Crunch News
The Multiplier

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