COST CUTTING – REVISITED

Posted by Charlie on 9 February, 2011

The recession: how long will the cuts continue?

February article of the month from the e-lesson warehouse: ‘Cost-cutting’.

Once again, the recession is on everyone’s mind. Last week, the message from economists and business leaders at the World Economic Forum in Davos, Switzerland was largely positive: the global economy is set for a “broad recovery” in 2011. However, cost-cutting continues everywhere, from cuts in public spending, and in businesses big and small, right down to the cuts we continue to make in our household budgets.

Earlier in the week, the governor of the Bank of England, Mervyn King, revealed the figures for the final quarter of 2010. Once again, the UK economy is shrinking. The bad results were a complete surprise to many economists, who called the figures “terrible”. Some blamed the snow for the poor results! Others were worried that there may now be a “double dip”, taking us back into recession, with things set to get worse before they improve. The United Kingdom, it seems, is not climbing out of recession as fast as many other countries.

The bank itself supports continuing cuts in public spending, seeing them as a necessary part of the long, slow road to economic recovery. Households have been told to expect a period of austerity, and the phrase, “austerity measures” is commonly heard in today’s business news, for individuals, businesses and the country as a whole. With wages in real terms much the same as they were four year ago, everyone is feeling the strain.

So, the start of 2011 is a good moment to re-visit this relevant topic. After all, the economic situation affects us all. There are many aspects of this topic to consider:

•    How is the “squeeze on pay” affecting our lives?

•    Will spending cuts help or harm the prospect of economic growth?

•    As businesses continue to struggle, which cuts are really necessary?

•    Is your country “on the way to moderate economic recovery”? How long will recovery take?

As with so many aspects of the economy, perhaps there are more questions than answers.

PETE SHARMA (FEB 2011)

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