Company profits would then be likely to dive, and firms may be forced to slash their workforces. Unemployment could rise by several hundred thousands, and incomes would fall. Public spending would rise sharply as the government conpensates those who are out of work, and the public finaces could fall back into deficit. Interest rates will have to come down sharply in a bid to revive activity. UK is different But even the pundits who are looking for the US to fall into recession this year don't think the UK will take the same route.
Domestic demand remains very robust, with consumer spending continuing to drive the economy.
With inflation remaining low, the Bank of England has plenty of scope to cut interest rates and stimulate activity. There is a growing expectation that the cost of borrowing will be on its way down within a matter of weeks. In addition, a key factor behind the US slowdown is the inbalances that have sprung up in that economy. During the boom times of the last few years, both US business and consumers have become heavily indebted. And with the US trade deficit with the rest of world reaching record levels, America may be accused of living beyond its means.