What the government’s ‘ recession alert ’ does – is to help businesses plan and avoid many of the factors which could cause problems if the UK did slip back into economic decline.
We recently saw David Cameron warn UK businesses about the threat of pressures caused by a global recession and how they may affect this country.
And there are points behind the Prime Minister’s comments that bear further consideration, such as the recent news that Japan slipped back into recession. The escalation of contention and threats over gas supplies in Ukraine. There is the increasing war on ISIS in Syria and Iraq and escalating hostilities between Palestine and Israel.
So is he right to issue a warning to the people of these shores? And what, if any, difference can this make to us?
It is certainly the case that a healthy global economy benefits the UK. We are a trading nation. We rely on stability across the globe and particularly among the countries to which we export.
And impacting factors such as the effects of Russian/Ukrainian territorial transgressions which put important volumes of gas supply to Europe could theoretically cause a significant hike in energy costs, which may be directly passed onto both business and domestic consumers. Fortunately, recent over-production in other areas of the world have sent oil prices plummeting, but the risks to the gas supply and prices cannot be ignored.
Equally, the cost of war and our military support to warring nations is and has been a huge drain on the nation, estimated at £30bn. Additionally it creates uncertainty leading to currency fluctuations and difficult trading conditions for exporters.
And these factors could, if not managed with diligence, cause many UK companies to reach a state of insolvency and potential liquidation.
What the government’s ‘ recession alert ’ does – is to help businesses to plan and to avoid many of the factors which could cause problems if the UK did slip back into economic decline.
It allows us to forward purchase our energy costs and buy into fixed tariffs to protect against sudden energy hikes. Exporting companies view risky markets aiming for new revenue streams from countries which have greater stability.
It allows for international traders to calculate where Sterling will be strongest and to hedge against currency fluctuations by buying and selling forward to cover export and import transactions.
And overall, it helps the UK economy – because the more that UK businesses protect themselves from the effects of Global unrest and economic fluctuation, the less effect a global recession will have. It enables our businesses to duck the punches and look to different markets – including the domestic market – enabling we, as a nation, to bounce back faster.