“Britain slides back into recession” says the FT; Ed Milliband began today’s Prime Minister’s Questions by asking David Cameron about the “catastrophic news” that the UK is suffering its first double-dip recession since the 1970s and one economist – Marcus Bullus, trading director at MB Capital – went so far as to say “the light at the end of tunnel was a train”.
Those are just some of the early reactions to the news that, according to official figures, the UK economy slid back into recession after contracting 0.2 per cent in the three months to the end of March. Coming on top of a 0.3 per cent drop in Q4’11 that puts Britain into ‘technical recession’ and leaves many wondering why our recovery since the 2008/9 recession has been the weakest in 100 years – slower even than the recovery which followed the Great Depression.
Infact, we should be careful not to over-hype the news. There are plenty of other economists ready to point out potential data discrepancies that could lead to the figures being revised upwards at a later stage. The last thing that anyone needs is for Britain to ‘talk its way back into recession’ through scaremongering and speculation.
What is clear, however, is that anyone looking for a quick end to the deleveraging that’s currently restricting the flow of business lending stands in line for disappointment.
Even before today’s news, the FT was warning about the “high cost of disorderly deleveraging”:
“The risk is of a vicious circle whereby eurozone economic conditions deteriorate, so depressing bank earnings and weakening asset quality, which in turn requires increased provisions. That erodes bank capital, creating more pressure for yet more deleveraging. A further risk is that deleveraging becomes disorderly if synchronised sales of bank assets cause a downward spiral in prices, which leads not only to capital shrinkage but funding shortages as interbank lending is cut back.”
As well as the economies of Eastern Europe, the biggest losers in such a scenario are likely to be small independent businesses – who have already seen the impact of the Basel capital regime shrinking the potential funding pot.
We’ve talked already – and will talk again- about the huge potential for the funding gap to disable the British economy over the longer term. As the FT rightly points out,
“If the eurozone economy is not now to be stricken by hypothermia, someone will have to offset the contractionary effect of bank deleveraging.”
This isn’t the time to knock bankers – they have little choice but to ‘put the brakes on’ whilst capital regulations effectively ‘tie their hands behind their backs’ but it is time for a new injection of business funding.
The time feels right for peer to peer lending and the time’s surely right for small businesses to start benefitting from a different way to lend and borrow money.
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