The global financial crisis has intensified over the past month, with the UK particularly badly affected. GDP growth stalled in Q2 after 15 years of continuous growth and the UK is almost certain to enter a recession in 2008H2. The key question is how deep this recession will be. A number of factors suggest that this will be a deep recession. The escalation of the credit crunch has necessitated a number of state bailouts, as well as government intervention in the banking sector in the UK and across the globe. Though the measures taken should shore up confidence in the banking sector, the short-term outlook for the financial services industry remains poor. Meanwhile, there is the risk of the big wealth losses from housing and equities and the possibility that as households become more cautious about borrowing and save more, a more significant retrenchment may occur.
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