Despite of sterling’s weakening in the forex market and the depressing GDP figures, PM David Cameron’s Chancellor of the Exchequer and the Business Secretary both admitted that there is alternative plan for the UK economy. The coalition government will push-through with its original economic program, which include budget cuts for many public projects and services.

Many are fearful about the possibility that the United Kingdom will again undergo a recession. The threat of a double-dip recession seems to become more probable considering the various indicators, such as the GDP slide, the high unemployment and the soaring inflation rate. The markets are very cautious at the moment when it comes to the status of British economy.

UK’s coalition government seems to be repeating the economic policies of the Thatcher’s era. The economic motto then was ‘There is no alternative.’ As what was proven in the past, the adoption of an inflexible economic policy can prove to be disastrous. The single-minded determination of David Cameron’s coalition government in slashing the budget can jeopardise the already fragile economic recovery. One does not need to be an economist to realise the detrimental effect of government budget cuts in terms of economic growth.

If public spending is reduceed, the forex value of the sterling, the value of British stocks and the productivity of the private sector will also suffer. This is primarily because of the reduction in the demands from the public sector in terms of public constructions, basic services and other government-funded projects.

The Prime Minister has emphasized the importance of reducing the budget deficit, which the current administration has inherited from its predecessor. The Prime Minister said that slashing the deficit is necessary for economic growth. However, many experts disagree with this stance. They say that instead of stimulating growth, the budget cuts will only worsen the situation.

Given the various dismal economic figures, the coalition government is now being subjected under strong pressure to provide stimulus for the economy. The government might be persuaded to prematurely implement its economic stimulus programs. These may include both monetary and non-monetary incentives. Some recommended the exemption of smaller companies from many tedious and redundant government requirements. It can also help if some basic changes will be made to the employment tribunal law. Both legislative and financial aids can contribute in stimulating economic recovery.

The latest official GDP data from the Office for National Statistics (ONS) indicated a 0.5% negative growth for the last three months of 2010. This totally opposite from what many pundit have predicted about the economy. It really came as a shock for policymakers, experts and investors. Fears over a possible double-dip recession in the United Kingdom resonated both in the stock market and foreign exchange market.

Those who are interested in forex trading and in equity investments are now a bit cautious when it comes to British-related assets being traded in the markets. If another negative GDP growth is recorded for the first quarter of the current year, the United Kingdom would be considered to be back in recession. As the forex and domestic value of the sterling is eroded, Britain is also threatened by a period of stagflation.

If there is one positive implication of a plunging GDP, it would be the less likelihood that the Bank of England will raise the interest rates anytime soon. This would be good news for all borrowers – both ordinary individuals and businesses. Of course, it would also come as welcomed news for millions of British owners who are on variable mortgages.

It seems that George Osborne is too defensive and even in denial about the shocking GDP figure. He insisted that it can be mainly blamed on bad weather that hampered agricultural production and product distribution. However, the Office for National Statistics has clarified that even with good weather, the GDP for the fourth quarter last year would still have been ‘flattish.’