UK Economy in crisis as unemployment and debt surge

Whilst much international attention has been focussed on the economies of countries such as US, Iceland and Ireland the developing crisis in the UK economy has merited little analysis internationally. The Labour government of Gordon Brown will face into the next general election without the benefit of a booming economy.

The British Government bailout of Royal Bank of Scotland and Lloyds TSB, is likely to add between £1 TRILLION and £1.5 TRILLION to the public debt, the equivalent of between 70 and 100 per cent of GDP, the Office for National Statistics has indicated.
Britain’s public sector net debt has already reached 47.8 per cent of GDP- January official figures show. Quite simply UK public finances are in a mess. Meanwhile the value of Sterling has plummeted by about 27pc against the dollar and 15pc against the euro over the past year. The Bank of England has cut interest rates with a view to depreciating the currency. This it is believed will reinvigorate exports. So far this policy has had little success.
The November 2008 stimulus package-designed to mitigate the impact of the global recession- was priced at 25.6 billion-pound ($38.8 billion) over two years.

With the public finances plunging more deeply into the red than anticipated by the Treasury, its forecast for a deficit of £118bn or 8 per cent of national income is to say the least highly optimistic.
It is anticipated by SOME independent observers that the deficit will reach almost £130bn in 2008-09. The position for 2010-11 is likely to be no better.
The CBI

The UK’s leading business group predicts the recession, which began in the third quarter of 2008, will last throughout 2009. The economy is expected to contract by 3.3 per cent and unemployment will reach close to 2.9 million by the end of the year. After six quarters of negative growth, the economy is expected to stabilise early next year with the recovery building throughout 2010…..

The CBI predicts the economy will contract by a cumulative 4.5 per cent over the six quarters of negative growth. GDP growth for 2009 has been revised down from -1.7 per cent in November to -3.3 percent. In 2010, GDP growth is expected to be 0.0 per cent -1.7 per cent in November to -3.3 percent. In 2010, GDP growth is expected to be 0.0 per cent…..As the recession deepens, unemployment is expected to rise sharply over the course of 2009. The CBI predicts unemployment will peak at just over 3 million (9.6 per cent) in the second quarter of 2010.

All in all gloomy times for the British economy. Swingeing cuts in public expenditure and tax rises are a sine qua non to arrest the slide in UK economic fortunes. Chancellor of the Exchequer Alistair Darling faces an unenviable task.