Some economists have predicted that the base rate in the UK will fall to 2% next year; some argue that they would like it to fall ever further. The Bank of England was created in 1694 and never before has the base rate been lower than 2%. That's a recesion of monumental impact in my book.
A crumbling economy, the most severe banking crisis since the first world war and the halving of oil prices were cited by Mervyn King, governor of the Bank of England, as the catalysts for a radical rethink of policy. And with China looking to keep its economy on track, it has announced a four trillion yuan ($586 billion) stimulus package, the largest in the country's history.
The fears about the severity of the recession is now real, with a decline of 0.5% in GDP in the third quarter in the UK a lot sharper than expected, with activity in construction and services plumbing new lows. According to The Economist, "Over the past two months, the global financial crisis has been intensifying daily."
The BBC said in a recent article that "feared recession in the US economy has already arrived, according to a report from Merrill Lynch," whilst the Straits Times said "In October [2008], the US lost 240,000 jobs in the 10th straight monthly decline. The unemployment rate jumped to 6.5 per cent, the highest since 1994."
The outlook for 2009 is very bleak indeed with forecasters seeming to vie with one another for the most pessimistic projection award. What started as a purely US investment bank problem has slowly spread to the entire financial sector across the world, and it is now engulfing entire economies, with the financial crisis destabilising many emerging nations.
The IMF's $253 billion in resources could soon be critically stretched if other countries join Iceland, Hungary and the Ukraine in seeking financial bail-outs. US consumers have slashed their spending by the highest amount in nearly three decades, which will impact harshly on emerging markets around the globe.
The United States has already entered a recession that could be "substantially more severe" than recent ones, said former National Bureau of Economic Research President Martin Feldstein.
With the housing bubble has burst, massive job losses and the cost of credit going through the roof, the recession over next few years is going to be difficult for everyone, and many are going to lose everything they have.
