Can Poor GDP Figures be Blamed on the Government's Strategy for Tackling Debt?

According to last week’s official figures, the UK economy has slipped back into recession, although these figures are an early estimate and highly likely to change.
 
 
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May 3, 2012 - PRLog -- The technical definition of a recession is two consecutive quarterly declines in GDP and rather than showing an increase in activity of the expected 0.1% in the first quarter, they showed a decline of 0.2%.   These results meant a plethora of recession headlines throughout the press and news media.

There is hope that the expenditure during the Olympics will push the UK economy back into growth or indeed this could even happen in the second quarter of 2012. In any event, investors seemed unconcerned with whatever happened in Q4 2011 and Q1 2012, at least if their appetite for the pound is anything to go by.

Since last week’s announcement that the UK had returned to technical recession, Sterling has strengthened against the US Dollar, the Euro and the Swiss Franc, and on Friday the Sterling moved a cent higher against the US Dollar and was creeping ahead against the Euro

As with the UK GDP data, investors paid little attention to the far better US figures on that came out on Friday. Output increased by an annualised - and preliminary - 2.2% in Q1, equivalent to quarterly growth of 0.5% and fractionally less than the 2.5%/0.6% predicted by analysts.

So can poor GDP figures be blamed on the Government's strategy for tackling debt? Professor of Strategy at Cass Business School (http://www.cass.city.ac.uk/), Joseph Lampel, explains why the government’s strategy is increasingly risky:

Strategy is a balance between staying the course and responding to changing circumstances. For the moment, the government is intent on staying the course in spite of changing circumstances. This does not mean that their strategy is wrong, but that it is now more risky than it was a year ago. However, if GDP figures grow increasingly worse in the next two quarters, they will have to rethink their strategy. Fortunately for Osbourne he has the Bank of England as a valuable ally. Further quantitative easing may reduce the pressure to deviate from the original austerity targets.

Sir John Cass Business School, City University London, is among the top one per cent of business schools worldwide. We offer undergraduate, specialist Masters (http://www.cass.city.ac.uk/courses/masters), MBA, Executive Education (http://www.cass.city.ac.uk/courses/executive-education) and PhD programmes. Our research has a global reputation and we have an outstanding employment record after graduation.
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