A Double Dip for the UK?

After increasing for four-straight quarters, the United Kingdom's GDP growth declined in the fourth quarter by 0.5%. As you can imagine, this has British officials very concerned. But the news actually gets worse. Zarathustra W. at the Also Sprach Analyst blog explains that stagflation might be next:

The situation in the United Kingdom seems to be very tricky. David Cameron and his coalition government has been determined to cut deficit, which will certainly hit the economy. The value-added tax (VAT) hike is not helping the situation as the Great Britain is having a stubbornly high inflation, now at 3.7%. With the VAT rise in-place, inflation is set to rise to 4% or more this month.

If inflation is already that high, it's going to be very hard for the UK's central bank to engage in much quantitative easing. And the government is focused on cutting the deficit, so a fiscal stimulus probably also seems unlikely. That pretty much exhausts the UK's economic toolbox. Now add in an across-the-board tax increase. It certainly looks like a double dip recession may be unavoidable.

Read the full story at Also Sprach Analyst.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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