Economy shrinking at faster pace
Wednesday 11th March 2009, 9:40AM GMT.
The economy shrunk at a faster pace in February, according to experts, and is now over four per cent off its peak.
Think tank National Institute of Economic and Social Research (Niesr) predicts that GDP fell by 1.8 per cent in February, after a 1.7 per cent fall in January.
Economic activity has fallen back to levels last seen in August 2006 and is 4.3 per cent below its peak in April 2008, the group reported.
“It is possible that increased availability of bank credit may make it easier for businesses to finance stocks and thus slow the rate of contraction,” Niesr said.
“The policy of quantitative easing may help in this respect, but it is a pity that it is not focused more on supporting the market for corporate debt since that would help businesses directly.”
The group has argued for the central bank to focus on buying corporate bonds, instead of government debt, as this would push up the price and help companies to raise cash more cheaply.
Niesr warned the contraction is likely to slow only when businesses have reduced their stock holdings to desired levels, as demand for manufactured goods is so weak.
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