It's not all bad news

By Jonathan Morris, August 9, 2012

Whilst the Olympics have provided a welcome diversion from the gloomy financial news, the prospects for economic recovery have dimmed somewhat with the announcement of recent growth figures.

The contraction of 0.7 per cent in GDP in the second quarter has come as a rather rude awakening. The reduction in growth has been particularly noticeable in the construction sector where output decreased by 5.2 per cent compared to the previous quarter. Concerns are already being expressed that we are heading for a so-called “triple dip” recession, later this year or early 2013.

The reasons for this pessimism? The ongoing Eurozone crisis remains a highly destabilising factor for investors and consumers, who remains nervous about how to spend their money. A decision as to whether Greece is staying in or leaving the Euro would certainly be helpful for the markets. The furore surrounding the rate-setting of Libor has also had a negative impact on our financial reputation.

However, there are some grounds for optimism. Firstly, the Confederation of British Industry (CBI) has reported that there has been a “modest” growth in orders and output for the three months to July and that the attitude of manufacturers to the general business environment has remained broadly stable relative to the previous quarter.

In addition, the “feel good” factor associated with the Olympics, with overseas visitors and Britons themselves putting more money into the economy, is likely to give GDP a short-term boost.
Finally, if the Government’s planned £40 billion UK Guarantees scheme is successful in helping to secure private sector funding for infrastructure projects that have been put on hold, this could have a significant impact upon the construction sector in particular and the economy in general.

Whilst we must not underestimate the financial challenges which we are facing, we need to recognise that it is not all bad news.

Jonathan Morris is a partner at international law firm Berwin Leighton Paisner

Last updated: 9:24am, August 9 2012