The Dr. Who Theory of double-dip recessions.

Dr. Who - TARDIS

Investment in business is likely to suffer from media coverage of the ‘double-dip’ recession, making an even stronger case for P2P Lending.  Today, FundingKnight blogger Mark Harrison shares his thoughts on why, when it comes to recessions, only Dr.Who can really tell if we’re in one or not….

 

Depending on your age, you may believe that Dr. Who is either a trendy young man, who appeared on our screens a couple of years ago… or you may believe that he wears a long flamboyant scarf. (I’m firmly in the latter camp, by the way.)

What you may have missed is that, until yesterday,  the only person who could say we were in a recession, double- or single-dip,  in the UK is the good Doctor, because doing so requires the ability to time travel.

This is because, here in the UK, we have a precise definition of what a recession is, and it’s different to the definition they use in the USA.

Over in the States, there’s a body called the National Bureau of Economic Research, and part of their job is to say when the US economy enters a recession. They use a broad range of factors, and basically announce what they’ve decided.

Here, however, a recession has a specific meaning – it’s two consecutive quarters of “negative growth” (which sounds like a politician’s way of saying “shrinkage” to me).

Now, about three months ago, it was announced that Q4-2011 was negative… to be fair, only just, because GDP  was only 0.3 percent less than the third quarter. Still, no-one who actually lived here in October, November or December would have thought we were in a boom.

So, what actually happened yesterday was that the official figures were released, and, surprise, surprise, it turned out that GDP growth in  Q1-2012 was, also, negative. So, we’re officially, we’re in a recession again. And, because we actually managed to grow for a bit in Q3 last year, before slipping back, we’re in a ‘double-dip’ recession.

Again, the ‘shrinkage’ was tiny – this time, one 0.2 percent. However, it’s still negative, and that means we’ve now been in a recession since October. There’s a slight bizarreness about the fact that, had Q3 also been bad, we’d still be in the same recession – so anyone who says that because we’re in a double dip then ‘this is the worst ever’ seems to have an unusual viewpoint.

However, it’s official – on Monday, only the Good Doctor could confirm that we’re double-dipping – as of yesterday, we all can – the Force is strong in us [or is it the other bunch who say that?]

Photo credit  – used under Creative Commons licence.

Double dip? Why the case for P2B lending just got stronger.

rollercoaster showing double dipToday, peer to peer lending became an even more important lifeline for the British economy.  We look at why the news that Britain is back in recession makes the case for P2B Lending even stronger.

“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.

Picture credit used under Creative Commons Licence