Jun 8, 2008

Is The UK Economy Beginning To Wobble Too?

Things had looked a bit better in Europe, economically speaking, but this surge in oil prices is causing some to talk about stagflation and recession. The UK is still one of New Zealand's major markets being particularly important in a range of product areas including wine. This from The Times

THE surge in oil prices to a record level of more than $139 a barrel on Friday has left the economy facing a severe “stagflationary” shock, economists say, with a rising risk of recession alongside high inflation.
A record, two-day surge in oil prices of $16 a barrel last week followed analysts’ predictions that the price will soon hit $150 and could go as high as $200. While others say that the sharply rising price is indicative of a speculative bubble that will soon burst, few investors have so far been prepared to bet against it.
Sushil Wadhwani, a former member of the Bank of England’s monetary policy committee who now runs Wadhwani Asset Management, said he was very gloomy about the economic outlook.
“We have the classic problem of a stagflationary shock,” he said. “We have a slowing economy, the European Central Bank telling us it is going to put interest rates up and now this. The world has become a very unfavourable place. Muddling through this is going to become very difficult.”