U.K. Services Contract

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After finding that UK and European manufacturing are in the doldrums, today we hear that UK services are also contracting. This surely must mean that the UK is in or will soon be in recession.

From Bloomberg News:

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U.K. services from airlines to the finance industry contracted last month by the most since October 2001 and banks said they’ll curb lending further in the third quarter, as Britain edges closer to a recession. An index based on replies on sales and business conditions from about 700 service companies fell to 47.1 in June from 49.8 a month earlier, the Chartered Institute of Purchasing and Supply said today. A reading below 50 shows contraction. A separate Bank of England survey showed banks plan to reduce the availability of credit to consumers and businesses this quarter.

At this point, the fate of the UK is sealed, its heading into recession. The real question is how deep and how long the downturn will be. This ultimately depends on how tight credit remains and whether tight credit forces consumers to pull back substantially, precipitating another wave of business decline and layoffs. My guess at this point is that credit will remain tight for the forsseable future.

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As a result, consumers will be forced to retrench, business will decline further and this will mean more people will be sacked. So, write off 2008 in the UK. Look for a second half 2009 recovery at the earliest.

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