Well it looks as if Britain is heading for its first double-dip recession in 37 years after the economy slumped in the final quarter of 2011 and officials warned of a new threat to many jobs. With almost three quarters of the general public saying they were worried that another recession would have a severe impact on them and their family, while just 13 per cent said they would not expect to be affected it is hard not too worry.

The fresh crisis in Britain’s factories dealt a blow to the Coalition, which has pinned its hopes for recovery on UK industry. The economy’s worse-than-expected performance, which put annual growth for 2011 in line with forecasts at 0.9pc, came as the Bank of England revealed that the private sector is planning job cuts – undermining hopes that it might pick up the slack from the roughly 110,000 public sector redundancies expected this year. Even if the economy does manage to grow in 2012, it’s highly likely that the year will start with a return to recession. We may already be in it given the fall in output at the end of 2011.

And let’s not discount the threat posed by the unstable global markets. The Eurozone debt crisis continues to rumble on, while the US is looking increasingly likely to slide back into recession itself. David Cameron warned that the global economy is close to “staring down the barrel”, while IMF chief Christine Lagarde claimed the global economy has entered a dangerous phase where heavy debt burdens could “suffocate” a recovery.

We’ve already seen £200 billion worth of money rolled out in this fashion and that could be expanded as early as October, when the Bank of England holds its next base rate meeting. Another, more controversial, option would be to cut the base rate from its current record low of 0.5%. The Bank of England’s rate-setting committee caused quite a stir when it revealed that it had discussed the possibility earlier this month.

According to the ONS, manufacturers bore the brunt of the quarterly slump, declining 0.9pc – the steepest fall since the start of the recession in 2008.  However, some hope was offered by an improvement in the CBI industrial trends survey for January. Although orders remained below normal, economists said the data suggested the deterioration in the industrial sector had “troughed”.

Cheaper food, reduced prices for computer games & smaller increases in the price of clothing & shoes contributed to a fall in the cost of living rate from 4.4% to 4%

The latest figures from the Office for National Statistics this week show the first fall in the annual inflation rate since last July. It had been highly anticipated that inflation would creep towards the 5% mark over the coming months fueling the possibility of an early rise in interest rates when the monetary policy committee next meet to determine the Bank of England interest rates in May.

“These figures should help to sound the death knell for a May rate hike, especially given the current woes on the high street,” said Philip Shaw, economist at Investec.

But Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said: “These figures represent a massive surprise on the downside and will no doubt be greeted with relief by the majority of the MPC. Indeed, with the MPC having forecast an inflation rate of 4.1% in Q1, for the first time in quite a while their forecast won’t be out of date within a couple of months of being published.

“We may still see CPI inflation edge up further over the months ahead, as the effects of further rises in oil prices feed through. But the dreaded 5% rate that we had once feared now looks a fair way off and is unlikely to be realised. That said, this doesn’t alter the fact that households will still see a substantial fall in their real incomes throughout this year – this just eases the pressure a little.”

News of the fall in inflation rates follows on from the report that The International Monetary Fund (IMF) has cut its 2011 growth forecast for the UK economy to 1.75%, its third downgrade in a year – a result of spending cuts it regards as necessary having a dampening effect on consumer demand.

Figures released from British Retail Consortium – BRC – last week show that Britain’s retailers are experiencing the toughest trading conditions for at least a decade and a half as a result of curtailed consumer spending.

In a recent interview given to the Guardian, Adam Posen – external member of the Monetary Policy Committee at the Bank of England – is predicting that inflation will drop dramatically by the middle of next year.

Posen is convinced that consumer spending is likely to be curtailed as a result of the coalition’s austerity measures combined with the weak economy. He reckons that the temporary effects of the increase in VAT, & the increased costs of fuel & food will level off resulting in the rate of inflation dropping back to below the government’s target of 2% by the second half of next year. “Household consumption is going to be pretty darn weak. It may even contract a little”, he said.

This stance taken by Posen very much echoes the views expressed by the governor of the Bank of England – Mervyn King – in recent speeches & documents.

Posen talked about how he has repeatedly voted for quantative easing & for the interest rate to be held at 0.5%, convinced that it is the right thing to do. He said:  ”If I have made the wrong call, not only will I switch my vote, I would not pursue a second term. They should have somebody who gets it right and not me. I am accountable for my performance. I’m holding my nerve because it is the right thing to do.” He added:  ”It would not just be terrible that I had messed up for other people but it is also my fundamental world view that I have been testing.

“I would take it deeply and personally, which is why I have laid awake at night thinking about it.”

Posen said he took issue with the view that because interest rates at 0.5% had been cut to their lowest ever level since the bank was founded in 1694 they should be returned to a ‘more normal level’.

“If I am a firefighter fighting a fire I don’t say I have pumped more water than I have ever pumped in my life so I must have pumped too much. You stop pumping when the fire is out.”

Many experts believe – as Posen does – that the increase in taxes and public spending cuts will naturally lead to a fall in inflation, & feel that a rise in interest rates is unlikely in these circumstances. However external influences such as the earthquake & tsunami in Japan, the crisis in Libya, & unrest in Egypt will need to be factored in to predictions regarding the UK economy.

The next decision on interest rates by the MPC will be announced on Thursday (7 April). Three members of the Monetary Policy Committee – Andrew Sentance, Martin Weale and Spencer Dale – are known to have voted for higher interest rates earlier this month. Experts say the decision will be close but do not envisage a rise.

Mervyn King – the governor of the Bank of England – has always expressed his opinion regarding the Bankers’ role in the recent financial crisis.

Giving evidence to the House of Commons Treasury committee, King once again risked the wrath of the financial services sector as he blamed them for the necessity of the government’s planned spending cuts. He said that people who had lost their jobs & businesses as a result of the crisis had every reason to be angry & he was surprised that there wasn’t more anger being expressed by the public.

“The price of this financial crisis is being borne by people who absolutely did not cause it,” he said. “Now is the period when the cost is being paid, I’m surprised that the degree of public anger has not been greater than it has.”

Questioned regarding lending by the banks to the economy he responded: “The figures are clear — the banks are delivering a negative volume of net lending. Credit conditions have improved for big companies, but there’s little sign that the situation has improved for small and medium-sized firms. I understand why the people running those companies still feel under great pressure.”

During the hearing it was evident that it is the opinion of the members of the monetary policy committee of the Bank of England – the body responsible for setting interest rates – that the crisis will have a long lasting impact for the UK economy.

Asked by one MP when living standards would recover King responded by saying: “The research makes it clear that the impact of these crises lasts for many years. It is not like an ordinary recession, where you lose output and get it back quickly. We may not get the lost output back for very many years, if ever.”

King also said that while a “squeeze on living standards is inevitable, that the distribution of the pain is a political choice”.

When questioned on inflation he King once again stated that raising interest rates as a gesture of the Bank of England’s anti-inflation resolve would be self-defeating.

As the session came to an end King announced that it was the 20th anniversary of his joining the Bank of England & that he could never have imagined the events that have occurred in Britain over the last few years. He concluded by saying, “I don’t intend to leave until we have persuaded this committee that we have a framework in place to ensure that such a crisis cannot happen again.”

In a sharper than expected fall its been announced that the UK economy shrank by 0.6% in the final quarter of 2010

The revision was said to be due to worse than expected performances from industry & service sector firms which fell by 0.7%. Consumer spending also fell & it was only the higher levels of government spending that balanced the shrinking economy by contributing growth at a rate of 0.7%. The Office for National Statistics has continued to maintain that 0.5%of the decline was due to the harsh weather conditions in December – the coldest on record.

The figures are particularly concerning given the huge cuts in government spending which are about to be implemented.

The shadow chancellor – Ed Balls – criticized the government’s plans to cut the deficit: “2011 should be the year when the British economy grows strongly and the recovery is secured. Yet the early signs are that the Tory-led government’s reckless decision to abandon Labour’s plan to halve the deficit over four years has seen the economy take a turn for the worse.

“We now face the worst of all worlds – unemployment and inflation both rising, growth stalled and consumer confidence collapsed. And this is before the government’s extreme fiscal tightening really starts to bite.”

Brendan Barber – general secretary of the TUC – said: “The government’s hope of an upwards revision of growth has been dashed. It’s time to wake up and smell an economy in big trouble. We need a plan B that doesn’t send it over the edge with deep rapid spending cuts.”

Despite the many concerns expressed, the treasury reiterated its determination to tackle the budget deficit, a spokesman for the Treasury saying: “The chancellor said that the fourth-quarter growth figures were disappointing and today’s revision doesn’t change that fact. It also doesn’t change the need to deal with the nation’s credit card – the country is borrowing more this year than is spent on the entire NHS.”

The new figures once again draw attention to the duality of issues facing the monetary policy committee of the Bank of England over interest rates. It is now clear from the minutes that three members voted for higher rates at February’s meeting, with one member calling for more quantative easing.

Vicky Redwood – senior UK economist at Capital Economics – said, “The slight downward revision to UK GDP might give the more hawkishly inclined members of the MPC reason to pause for thought,”

The US economy saw its first growth in over a year, rising to an annual rate of 3.5% between July and September.

Experts believe that a major spending plan by the US government which featured a scrappage scheme to encourage the car sales market has been the main cause of the upturn.

Some economists believe that there could be more setbacks lurking ahead, despite the official statistics showing that the recession is over.

A spokesman at the White House announced that recent economic progression was “a welcome milestone” but it would take more time for a full recovery to be recognised.

The US economy had risen 0.9% in relation to the previous three months, whereas the UK economy remained in recession, unexpectedly dropping 0.4%.

Hugh Pym, the chief economics correspondent for the BBC, revealed that the growth rate of 3.5% was greater than the 3.3% predicted by most experts.

He continued:”The sheer scale of the stimulus in the US has made a big difference, it was much bigger in percentage terms than that in the UK.”

“That the US, the powerhouse of the world economy is growing once again, is good news for the global economy has a whole.”

The last time the US economy grew was in the second quarter of 2008, by an annual rate of 2,4%.

The National Bureau of Economic Research will reveal the full extent of the US economic climb from recession when it analyses all the factors.

Some factors were significantly responsible for helping US economy during the third quarter, according to the Commerce Department.

The spending on durable manufactured products rocketed up at an annual rate of 22.3% which was the highest quarterly figure since 2001 and was spearheaded by the ‘Cash for Clunkers’ scheme helping new car sales.

Consumer spending increased on housing products by 23.4%, the greatest quarterly surge in 23 years, and came as a result of an improving housing market.

The big increase is considered by many to be due to the government’s $8,000 tax credit provided to first-time house buyers.

Government spending increased by 7.9% as stimulus spending spread and exports saw their biggest rise since 1996, rising by 21.4%.

Brian Bethune, an economist for HIS Global Insight stated that “it’s good to have the economy growing again.”

“But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.”

“The challenge here is to get organic growth – growth that isn’t helped by fiscal steroids.”

However, unemployment is at a rate of 9.8% and a sharp fall came in September in the car sales industry as a result of the popular car scrappage scheme coming to an end in August.

Dean Baker, co-director of the Centre of Economic Policy Research believes that “you can say that the recession is over, but it sure won’t feel like that.”

“There is a lot of downward momentum that isn’t going to go.”

According to official figures, the UK experienced an unexpected contraction of 0.4% for the third quarter, showing that the UK is still stuck in the recession.

This quarterly contraction is the sixth consecutive contraction, the worst run of figures that UK gross domestic product (GDP) has experienced since records began 54 years ago.

The GDP of a country represents the value of goods and services produced by a country. The figures released may be altered at a later date, as this is just a first estimate.

The Office for National Statistics (ONS), had been expected to show quarterly growth of 0.2%. However, no growth in retail sales for September and a 2.5% fall in industrial output for August had dented people’s positive expectations.

Experts have revealed that one of the main causes of the contraction was an unexpected drop in the services sector, with distribution, catering and hotels generating some of the worst figures.

Nearby countries France and Germany exited the recession earlier this year, and it is generally considered that the UK’s reliance upon the services sector, and more specifically, the finances sector being the main reason.

The UK economy has now experienced a 5.9% contraction since its high point prior to the recession.

The Bank of England is set to re-think its quantitative easing plan after seeing such a poor result in GDP figures. Quantitative easing involves the Bank of England printing money to buy bonds from companies and banks in an effort to encourage positive activity in the economy.

HSBC’s Bronwyn Curtis spoke with the BBC, revealing that “back in August we had a worse-than-expected second-quarter GDP number and that is the reason that the Bank of England extended the quantitative easing programme,”

ING’s James Knightly felt that the data was “awful with no positive news” and “clearly suggests that the likelihood of an expansion in quantitative easing by £50bn or so over the next quarter is rising, although [it] is not a foregone conclusion.”

It is considered by many experts to be disturbing that measures taken by the government and the Bank of England have failed to make a positive impact. However, David Kern, the chief economist with the British Chamers of Commerce believes that “continued intervention – including help for businesses to access finance, and incentives to promote investment – is still needed.”

“Above all else, business confidence must be nurtured, to ensure that recovery is not further delayed.”

Alistair Darling has announced that the government must borrow its way to recovery and believes that it’s the best avenue for the UK economy in the long run.

The Chancellor of the Exchequer confessed that further national borrowing “may feel counter-intuitive,” but “will mean the bills we face as a country are lower” in the long run.

However, many believe that the levels of government debt are already too high, with cuts in public spending and tax rises required. The government has already raised borrowing during the recession by high amounts.

Following Mr Darling’s speech, a question-and-answer session was held, with the chancellor finding agreement with Mervyn King, the Bank of England Governor, stating that there were “no simple answers” when it came to the reform of big banks.

According to Mervyn King, their core business may need to be divided into other practices to prevent them from becoming so big that they aren’t allowed to fail.

Mr Darling was concerned that “we cannot have a regulatory regime that excludes the possibility of failure.”

He went on to state that the banking sector needed more competition, and when the government came to selling its bank stakes that were bought during the financial crisis, it would be hoping to develop greater competition.

Many are calling for a reduction to the borrowing and spending that has caused so much debt, but Mr Darling believes that withdrawing government support would be “wrong and dangerous,” and the country would have to make a big decision.

At a speech in London, Mr Darling declared that “we can resign ourselves to a decade of austerity, low growth and low employment, or we can embrace change, turn it to our advantage and seize the huge opportunities a global recovery will bring.”

He continued by warning that withdrawing government support to the economy “would put the recovery at risk and abandon people facing unemployment.”

In a bid to encourage demand during the recession, the government has pushed billions of pounds into the economy through its £175bn quantitative easing plan, cut the VAT rate and helping ailing banks.

According to Mr Darling, a great deal of work was still required to steer the country out of the recession, including three big steps.

“First, we must support the economy until we’re sure the recession is over. Some are tempted to think the crisis is over. It’s not. Banks all over the world are still dependent on government support.”

The second step would involve raising taxes to regain financial strength and taking “tough choices on public spending for the years ahead”.

He added, that it “will mean cutting costs, cutting waste and cutting lower priority budgets, while continuing to invest in our priorities and our future.”

His third step would involve a government plan of growth.

“We need growth, because when we grow, the economy becomes bigger, we all become richer as a country, and it gets easier to pay back debt.”

Whilst the general financial atmosphere is improving and optimism growing, it is too soon to announce that we are in the process of recovery, according to experts at Ernst and Young Item Club.

The influential professional services firm expects some growth towards the end of 2009, but this growth should begin to struggle, with 1% expected growth for 2010.

They also predicted that customers repaying debt will grow slower than first anticipated and impending tax rises will follow the election.

BT Business research predicted a more optimistic outlook, declaring that small businesses are positive about the forthcoming year.

In September, BT Business conducted a survey of over 7000 small businesses and found that 75% believed their business would see an upturn in 2010, with 61% confident about their business’ prospects.

Professor Peter Spencer, Chief Economist from the Item Club, issued a wake-up-call to all those getting carried away with the optimism of recovery.

He warned, “there could still be substantial pain to come for corporates and consumers.”

“For a sustainable recovery the UK economy needs world trade to pick up and there is still not much sign of that happening.”

One of the factors holding back growth is that the VAT rate will return to 17.5% from its current level of 15% on 1 January, a change which may see consumers making purchases before the New Year.

Several other factors which will hold back growth lie on the horizon. An increase in national insurance contributions, the new 50p tax rate, the termination of the car scrappage scheme, tighter government spending and the return of stamp duty on housing are all due to hit the country.

Judging whether the recovery is happening, on the way or unlikely is difficult to forcast.

Professor Spencer went on to tell the BBC that the recent economic data has been “very mixed,” adding, “the stock market is absolutely rampant, industrial surveys all back in positive territory, but it’s yet to show through in hard data for output and things like that.”

“And when it comes to lagging indicators like unemployment, I’m afraid it’s going to be ‘feel bad’ for quite some time to come.”

On Friday, the official statistics for the Gross Domestic Product (GDP) are released, with many expecting no economic growth at all.

GDP is a measurement of the services and goods produced in a country, and since the first quarter of 2008, the UK GDP has been in negative figures.

The Bank of England has focused on quantitative easing, an act of pushing money into the economy. Professor Spencer feels that this has been of little success, with the little improvement on bank lending, going on to complain that “instead, the banks appear to have used much of the money to rebuild reserves and improve liquidity.”

Official statistics show that one of the main measures of inflation has reached its lowest point since September 2004, another sign of sterling weakening. The annual rate of 1.1% in September was lowered from 1.6% in August by the Consumer Prices Index (CPI).

A separate measure of inflation conducted by the Retail Prices Index (RPI) found that mortgage interest payments and housing costs also dropped, from -1.3% to -1.4%.

The pound also reached its lowest point in the past six months when it fell 0.5% against the Euro to 1.0628 Euros and to a five-month low of 1.5730 US Dollars.

Weak

Duncan Higgins, a senior analyst for Caxton FX, felt that “this is bad news for the pound.”

“The CPI figures will weigh heavily on the UK currency and will continue to discourage investment.”

A report conducted by the Centre for Economics and Business research predicted UK interest rates would not rise above 0.5% until 2011 and fail to meet the 2% mark until 2014; a further damnation to the outlook for the pound.

Meanwhile, the strength of the UK economy was dealt a further blow last week when it was revealed that industrial output dropped in August.

A prediction for the GDP had to be recalculated by the National Institute of Economic and Social Research after the UK economy failed to grow during the June/September quarter.

However, the economy is still very “frail” according to the British Chamber of Commerce (BCC), despite business confidence improving.

In an effort to sustain a stable broader economy and prices, the Bank of England is making efforts to retain 2% CPI inflation. Should the CPI inflation drop below 1%, the governor of the Bank of England must provide a written explanation to the Chancellor, Alistair Darling.

High energy prices a year ago, in comparison to lower energy prices this September are being blamed for the recent fall in inflation. The Office for National Statistics (ONS) reported that electricity, gas, and other fuel bills tumbled by 7.3%. Energy costs have started to level more recently, with little change from August to September.

Jonathan Loynes from Capital Economics predicted that we can expect to see CPI back at the 2% mark by the start of 2010, due to increased energy prices and VAT returning to 17.5%. He does believe that a “huge amount” of unused production capabilities would keep inflation down and “keep alive the threat of a period of outright deflation late next year or beyond.”

In contrast, Keith Wade of Schroders UK forecasted that it “probably will be the low point in inflation.”