The UK's Recession Continues.

Today (25/7/12) saw the release of the provisional GDP data for the British economy for Quarter 2 (Q2: April, May, June). These figures may be revised up or down but they show that the UK economy shrunk by 0.7% for the period. This shrinkage is much more significant then the Q1 fall of 0.2% and the 2011 Q4 drop of 0.3% meaning that the UK is experiencing it's worst double-dip recession since records began and the situation appears to be getting worse.

The government has blamed the fall on the extra Jubilee bank holiday and the bad weather leaving it up to the opposition Labour Party to start the Olympic debate over Britain's economic policy. However a closer look at the figures show that the overall fall has been mainly driven by a 5.2% fall in the building/construction sector. This sector is largely driven by large scale property developers which are more dependent then most on the credit markets such as the London Inter Bank Offered Rate (LIBOR) market. Worries over the Eurozone crisis and fears of a second banking collapse mean that the credit markets are incredibly tight at the moment making it very difficult for the building/construction sector to do business. Therefore the government has something of a point when it argues that the latest downturn owes more to market conditions in Europe then anything that's happening in Britain.

Market conditions in Europe have been particularly tough over the last week. Spanish borrowing costs have risen to around the 7.5% mark which triggered EU bailouts in Greece, Ireland and Portugal. The Spanish stockmarket was forced to introduce a ban on short-selling as markets across Europe tumbled on the news. Also the Eurozone's strongest economies such as Germany, the Netherlands and Luxembourg have either lost their AAA credit ratings or been put on negative outlook by some of the credit ratings agencies such as Moodys. The loss of these AAA credit ratings will make it much more expensive for the European Stability Fund (ESF) - which is meant to help nations like Greece, Spain and Italy - to borrow money. What seems to have caused this latest round of volatility was the announcement over the weekend that the Eurogroup is to go ahead with the E100bn bailout of Spanish banks. This has angered the financial sector because they wanted the Eurogroup to press ahead with plans that would have seen bailout money go straight to the banks rather then national governments and plans for further Eurogroup integration such as the introduction of Eurobonds or the European Central Bank (ECB) buying up troubled nations bonds. As they didn't get what they wanted the markets are now lashing out in order to put more pressure on the political leaders of the Eurogroup to give in and give the markets what they demand.

These problems in the Eurozone also seem to be a significant factor in today's decision by the Greek Olympic Team to send home triple jumper Voula Papachristou for making racist comments about African migrants and voicing support for the fascist Golden Dawn Party on Twitter. Although I don't know enough about Ms Papachristou to say definitively that she's not racist the whole incident does seem a little planned. The idea was first to warn official visitors to the London Olympics that they should be careful what they saw whether it's over electronic communications such as Twitter or not. Secondly it seems to be an attempt by Greece to get an even sweeter bailout deal by raising the spectre of the rise of the extreme-right in response to the nations economic problems. Thirdly it seems to be an attempt to promote a discussion about African migrants which is a big issue within the EU and even stretches as far as Libya, Niger and Chad which are all major stop-off points for migrants from sub-Saharan Africa as the try and make their way into the EU.



Obligatory time and date stamp: 15:50 on 25/7/12.