UK: Shoulder-to-shoulder with recession

Intelligence Desk

Despite the weakening UK pound, the country’s manufacturing exports have witnessed the worst collapse since records began some forty years ago according to the latest statistics. Export data for January 2009 indicates a drop in output of 2.9 percent which translates into a 12.8 percent annual drop, the steepest since January 1981. The quarter-on-quarter drop was 6.4 percent, the worst showing since records began in 1968(Edmund Conway).

The contraction is taking place concurrently with an estimated 17 percent loss in the wealth of households due primarily to falling stocks and real estate prices, also at a forty year low. In monetary terms, it represents the equivalent of UKP 20,000 for each individual and UKP 45,000 per household (Smith and Watt). By comparison, US household wealth took a 18 percent hit with real estate and stocks loosing some $11.3 trillion over the same period.

Across the Manx sea, Ireland’s economy is forecasted to contract by six percent according to the Irish Central Bank governor. Following a decade of rapid growth, the Irish economy was the first of the EU members to feel the dawning of the recession in 2008. Serious consequences are expected in the labor market where unemployment could reach 11 percent. Tax revenue has already fallen by some 24 percent in the first two months of 2009.

London's real estate sector is amongst the worst hit during January according to research firm Acadametric who estimate a 1.5 percent loss. Taking Kensington and Chelsea, the borough favored by bankers and fund managers, average house prices have fallen from a peak of UKP 1.2 million to UKP 861,013 by January 2009. The volume of sales have also decreased drastically over the same period. Some estimates forecast a further 55 percent fall in property prices this year.

London’s airports have also been at the fore of the recession with Standsted registering a six percent drop, equivalent to 1.4 million passengers. Gatwick reported a fall of 2.8 percent and some of the south London based airlines went into bankruptcy. Traffic is likely to continue to decline according to Harry Bush, the CAA group director of economic regulation. He is quoted as saying that “the fall in passenger numbers is to be expected in light of the worsening economic situation during 2008. The early indications are that the larger falls seen in the last quarter of 2008 are continuing into the new year, with the prospect of declining traffic in 2009 overall.”

Economists are now calling for measures aimed at mitigating the long-term impact of the slump, particularly on the vital skills base within manufacturing. Failure to do so would have serious long term consequences according to most commentators. Some measures, such as austerity levies on pensions that were initiated in Ireland, have caused mass protests with people taking to the streets.

This phenomenon has been gathering momentum in recent months. According to a recent report by the EIU, popular anger is currently growing around the world due to rising unemployment, pay-cuts and bail-outs for banks. Consequently, political regimes may be destabilized in 95 countries described as being ‘high’ or ‘very high risk’. Whilst three European counties (Moldova, Ukraine and Herzegovina) were in the ‘very high risk’ category, the report noted that two European governments have already succumbed and fallen victim to the recession (Iceland and Latvia).

What comes as a surprise is that the report also hints of turmoil in the UK. The Prospect magazine poll suggests that 37 percent of UK residents think there will be serious social unrest in UK cites that will require army intervention. The unrest will be accompanied by anti-immigrant sentiments according to the report. These finds are backed by another recent report claiming that 78 percent of British adults want immigrants to lave the country is they do not have a job. Over fifty percent also opposed the right for all EU citizens to settle and work in the UK. The issue has already caused a political storm.

Whilst the UK has a long and distinguished record of democracy and governance there have been sporadic periods of turbulence in almost very single post-war decade. The evidence suggests that the 2009 will be a challenging time in this connection. By contrast, Iran and China are listed as the only countries in the low risk category due to the independent nature of these economies according to the EIU report.


Copyrights RIU(2009)