Will the UK ‘double dip’?

25th October 2011

Markets remain fearful that the global and UK economies are entering a "double dip". As discussed in several recent posts, a global recession would be unusual – possibly unprecedented – against the backdrop of recent strength in G7 real narrow money expansion. This strength, however, has been driven by the US and to a lesser extent Japan. Monetary trends remain weak in the Eurozone, where survey indicators are now in recessionary territory – see yesterday's post.

Will the UK be dragged down by Eurozone contraction? As described below, a monetary forecasting model employed over many years indicates that the probability of a UK recession has risen sharply in recent months but remains below the 50% "trigger" level. On defensible assumptions about the inputs – including, critically, stable global financial conditions – the model predicts that the economy will regain momentum later in 2012.

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