Is the Business Cycle Moving Towards Recession?
One of the world's top investment banks, Morgan Stanley, believes Britain could be on the verge of its first recession for 16 years. (Daily Mail, 25 October 2007)
House prices are already falling and the BoE (Bank of England) highlights in its Financial Stability Report (published 25 October 2007) that the commercial property sector is 'particularly prone to further shocks and to rises in the cost of finance'. Following the Northern Rock problems last month, it pointed out there has never been a banking crisis in the UK without a simultaneous commercial property crisis. It warns the UK financial system remains under threat from the global credit squeeze. (Financial Times, 25 October 2007)
Sir John Gieve, deputy governor at the BoE, said:”There have been signs of recovery in recent weeks but some markets are still illiquid and the financial system remains vulnerable to further shocks.' (BBC, 23 October 2007)
James Harding, Business Editor at The Times, commenting on the Bank of England's financial Stability Report believes: 'for all its evident powers of diagnosis, the Bank's own assessment of the problems in the financial markets falls short when it considers its own part in remedying the situation ….. and does not address the key debate over whether Mervyn King, the Bank Governor, was right in August to take the high ground on the issue of moral hazard and refuse to extend three-month money to the likes of Northern Rock.' (The Times, 25 October 2007)
External factors are those outside the control of the business. It is vital for businesses to be aware of these changes. The Times 100 includes a case study showing other external changes that affected AEGON in its forward planning.
Daily Mail print edition – Are we on the brink of recession?, 25 October 2007
Potential Study Questions:
- Recession is one of four recognisable phases of the business or economic cycle. What are the other three?
- Define the term recession
- Apart from changes in the business cycle, what other external factors are outside the control of businesses?