The recession facing the UK is far different than those in the 1980s and '90s, says Ian Kernohan, an economist with Royal London Asset Management.
Despite the fact this year looks set to be the worst for GDP growth since the early 1980s, and possibly the post-war period, there will be some positive news if the economy can free itself from the constrained credit conditions.
Kernohan says: "The recessions of the early '80s and early '90s came about primarily as a result of very high inflation. The bad news is the current recession has not been caused by high inflation, but rather by a self perpetuating vicious spiral from bank losses to tighter credit conditions to falling asset prices to further bank losses and so on. It is this Gordian Knot which needs to be untied if we are to avoid an even worse calamity."
Kernohan goes on to say the positive news is the lack of inflation present currently, which has enabled a more aggressive and speedy policy push by governments than has previously been seen.
He concludes the added devaluation of sterling, though unsettling, will help provide a needed flexibility to the UK economy as it adjusts to changing times.Investment Week
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