UK economy braced for 'triple dip'

As savage government cost-cutting continues, concerns grow at damage caused by austerity.

A volunteer, right, gives bags of groceries to a family at a food bank in St Luke's Church in West Norwood, London. More people are struggling to feed themselves as austerity measures hit the poor.

LONDON // Some people say that recession is just a word - but in Britain there are fears that it could become a habit. And a dangerous one at that.

It is possible that official figures for first-quarter economic growth, due to be released today, could put the country back in recession, and tension is building.

Although the average prediction from economists is for growth of 0.1 per cent on the quarter, they have warned that it would take the smallest statistical variation to shift the figure into negative territory. That would place the country in recession, which is technically defined as two consecutive quarters of economic contraction.

Another recession - the third since the 2008 financial crisis - is already being referred to with foreboding in the media as a "triple dip". Experts warned that it would create a wave of negative media attention that would scare consumers away from spending, feeding into a vicious cycle that has the economy flat-lining.

"It's psychological - this is all psychological," said Cary Cooper, a professor at Lancaster University Management School. "It's about the message that those figures send to consumers and small businesses."

The government desperately wants a strong growth figure to justify its increasingly criticised policy of painful spending cuts.

But recent indicators on Britain's economy, the third-largest in the 27-country EU after Germany and France, have been disappointing.

Inflation is rising, cutting into standards of living. Unemployment is up. Two international ratings agencies have downgraded the country's credit grade from the top level AAA, warning about the government's fiscal policies.

The government, which has long played on its AAA rating as a sign of its economic might, has been pursuing a harsh programme of spending cuts and tax increases to reduce the budget deficit which, at 7.4 per cent of annual economic output, is more than twice the EU's 3 per cent limit.

Like many governments across Europe that have been scarred by the bond-market turmoil that forced Greece and four other countries to seek, rescue loans, Britain's ruling coalition is focusing on cutting debt quickly, even at the cost of short-term economic pain.

What some governments and economists are slowly realising, however, is that they may have underestimated the extent of the damage such austerity would do.

There's long been pressure domestically in Britain to ease off the budget cuts, but in the past few days the International Monetary Fund has also chimed in.

The IMF, which is involved in all of Europe's sovereign bailout programmes, has put pressure on the UK's treasury chief, George Osborne, to slow down the austerity measures in hopes of reviving the economy.

As the debate rages on, even the head of the Church of England - the Archbishop of Canterbury, Justin Welby - has waded in and used a word no one wants to hear: depression.

Archbishop Welby previously served as an oil industry executive and now sits on the parliamentary banking standards committee.

He told an audience at the heart of government in Westminster on Monday that there was an issue of confidence and trust - and there is a need to rebuild both.

"I would argue that what we are in at the moment is not a recession, but essentially some kind of depression and it therefore takes something very, very major to get out of it in the same way as it took something major for us to get into it," he said.

The Bank of England has cut interest rates to record lows and pumped money into the financial system in the hope that this would encourage banks to lend money more cheaply. But the results have been mixed and experts say there is only so much a central bank can do to create jobs.

Even if the economy dodges recession today, the daily reality for many Britons remains tough.

The Trussell Trust, a network of food banks, said it fed more than 350,000 people in the year ending in March - more than double the 128,000 it had helped during the previous 12 months.

Tim Boyce, a retired investment banker who runs a south London branch, said he was seeing the people behind those numbers.

Inside a frosty church that has opened its doors to the desperate, he watches as they come for emergency handouts of rice, pasta and beans.

"Most people don't realise the extent of poverty," he said. "It's hiding in plain view."

Take Kevin Bishenden, 50, and his wife, Nicola, 40. He's an upholsterer who says that no one wants to hire someone his age. She says she just can't find work. The only reason they aren't homeless is that Britain's welfare state manages to keep a roof over their heads.

But they've slowly been selling all their possessions, together with memories of a past life. First a bike, then kitchen items. All the DVDs are going. They've already sold their wedding rings.

He lamented an additional council tax payment of £15 that came into effect as part of the government's austerity plans. His exhaustion was clear as he tried to imagine how they might pay it.

"Where's that supposed to come from?" he asked.