A report from the OECD, a rich-country think-tank, released recently said that out of world’s seven biggest economies, out for Britain’s the bleakest because it is the only one facing recession this year. So the government’s often repeated claim that economic woes are global, and well-managed Britain is better placed than most to deal with them are probably not accurate.
Not long ago the Chancellor of Exchequer, Mr Darling said that the economy was facing worst outlook in 60 years. He clearly meant well but things are perhaps not as dramatic as it sounded first because:
- Things are not as bad as rationing in 1940s
- The three-day working week and 25%-plus inflation of the 1970s was one of the worst times in recent memory
- Britain has some way to go before it has 3m unemployed of the early 1980s (although many people are predicting it but we aren’t there yet)
People have been predicting the housing bubble to deflate, unemployment to rise. This will undoubtedly mean that more people will be trying to stop repossession of their homes.
The Economist, a well respected newspaper says that it is pretty obvious that British economy has serious problems. To quote Economist:
“Britain’s housing bubble was more dangerously inflated than most countries’; its households are more indebted; financial services account for a bigger share of its economy; and its government, thanks in large part to Mr Brown, spent with both hands during long years of unremitting economic growth, leaving little scope for fiscal fine-tuning now.”
So here is the bad news:
- Bank of England says that growth will be flat for a year
- Sterling has lost 15% of its trade-weighted value over the past year (5% over the past month alone).
- Inflation is widely expected to hit 5% this year pretty much meaning that the chances of interest rates coming down are remote.
- Unemployment is edging up
- Housing market is collapsing: prices have fallen by 11% in a year, and the number of new mortgage approvals was down by 71% in July from last year.
- People are expected to spend hardly anything this Christmas as economic uncertainty continues.
Contrast this with United States.
- American economy is growing again
- Dollar is bouncing back
- Some people reckon that the housing crisis may already have touched bottom.
Reason? Federal Reserve (which is equivalent of Bank of England) handed out almost $180 billion so that the money could be pumped into the economy.
Britain’s prospects appear grim in comparison and we just have to take it n the chin. There is no easy fix, no return to the days of plucking credit cards and mortgages off trees. Sell and rent back industry will continue to do well as stopping repossession will be priority for home owners.
Sterling was overvalued and is now falling (quite rightly). Which means that exports will improve as it becomes easier to sell abroad. So the manufacturers will be able to create a few jobs in time. Housing was grotesquely overpriced; prices are slumping.
These are painful but necessary realignments. We have bad times ahead. We just hope that these times do not last very long.
Filed under: General
