The end of July saw the release of the Q2 GDP figures. The -0.8 per cent fall in GDP between Q1 and Q2 showed that optimistic survey data and press reports don't necessarily convert into actual economic growth. The graph on the left shows the cumulative fall in GDP below its pre-recession peak for the current recession and the previous two. The pace of the decline into the current recession is clear.

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Recession speed

Volterra's forecasts for the UK economy imply a relatively stable second half of 2009 and growth returning in 2010. In a historical context the recession will be similar in depth to the 1979-81 experience, although much sharper in its pace. The 1990s and early 1970s recessions were much milder and slower.

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Unemployment lower than expected

Believe it or not, the recent rises in unemployment levels have been less severe than many expected. Unemployment in this recession is expected to peak at around 9 or 10 per cent, whereas the much less severe recession of the 1990s saw unemployment peak at 10.7 per cent, and in the '80s recession, which was a similar recession in terms of length and depth to the present, unemployment peaked at 11.9 per cent.

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Four months of RPI deflation

The RPI measure of inflation has been falling since March. Prior to this, since the start of the series there had been only 7 previous months of RPI deflation, during 1959 and 1960. Sustained deflation has occurred in the UK in the 1920s and '30s. The downward pressure on the RPI measure stems largely from the dramatic reductions in base rate and hence mortgage rates. The PRI measure includes the cost of mortgage interest payments. The nature of the RPI measure means that these rate cuts are still feeding through to the inflation rate.

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World trade nose-dives

Since the onset of the recession, world trade has headed downward at an alarming rate. Since the middle of 2008, both imports and exports of OECD countries (the most economically developed countries in the world) have fallen by a third. This contraction in trade is the worst seen since the Great Depression of the 1930s.

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Proving 'de-coupling' false?

The sharp downturn in trade has occurred across both developed and developing economies. This synchronised downturn has cast doubt on theories of de-coupling between the economies of the developed world and emerging markets such as Brazil, India and China (the so-called BRIC economies). Increased geographical diversification of trade flows from emerging markets lead some commentators to believe that growth in these economies was no longer reliant on the US and the big developed economies.

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