The economy is shrinking at a speed not seen since the 1980’s crash.

It appears that we are fast approaching a DEPRESSION rather than a RECESSION.

A depression is a sustained period of reduced GDP a recession is a reduction in a countries GDP.

For the most part this is due to reduced spending caused by low consumer confidence and the lack of availablity of credit to fund spending.

The government has tried to remedy this by increasing government spending and by lending the banks money.

However with the banks still not increasing their lending and the interest rates still not being passed on to the customers by the banks the governments efforts so far have had a negliable effect.

Over the month of December we are not likely to see any improvement.

We need to look to January for a recovery.

Merry Chrtistmas

BB

More info on the shrinking of the UK ecomomy can be found below.

UK economy shrinks by 1% in 12 weeks

The UK economy shrank by 1% in the three months to November as the pace of the downturn quickened, a leading think-tank warned today.

The National Institute of Economic and Social Research (NIESR) said “there was every reason to believe” the figure would be worse for the last three months of the year.

In a further sign of the deepening economic woe gripping the country, the organisation also revised its output contraction for the three months to October to 0.8%, from 0.5%.

The figures “make clear that the rate of output decline is accelerating”, NIESR said.

Latest official UK data showed the economy shrank 0.5% between July and September — the first contraction for 16 years.

Initial estimates for how output during the three months to December has fared are due out from the Office for National Statistics (ONS) next month, but they are widely expected to show that the UK is officially in recession.

NIESR — which is one of Britain’s largest independent economic research bodies — said the reduced availability of bank lending was the main problem for policymakers to address.

It said: “The Government faces the real risk that, despite the measures it took in last month’s Pre-Budget Report, output will fall more sharply than it expected to the end of next year.

“The main problem it needs to address very urgently is the availability of bank credit.”

The Bank of England has slashed interest rates by 2.5% in two months in the battle to stave off a deep UK recession.

The Government has also provided billions of pounds of funding to the UK’s banking sector to boost lending to homebuyers and small businesses.

It is being paid for by increased Government borrowing. The Chancellor, Alistair Darling, was due today to face a grilling from MPs over his plans.

The NIESR report follows data from the ONS which showed that UK manufacturing’s biggest slump in almost 30 years had deepened.

The ONS said that in October, output had fallen more heavily than expected, by 1.4%.

The dire performance represents the eighth successive month of decline in the worst run since 1980.

This leaves annual output 4.9% down after September’s figures were also revised lower.

Overall industrial production, which also includes the mining and utility sectors, fell 1.7% between September and October, at the peak of the crisis in the banking sector.

Paul Dales, of Capital Economics, said “activity all but fell off a cliff” at the start of the final quarter of 2008.