2009 Economy Forecast: A Bad Year for UK

The United Kingdom’s gross domestic product (GDP) declined 1.5% during the last three months, according to the National Institute of Economic and Social Research—the worst fall in 28 years.

Economic downturn has manifested in plummeting house sales, the decrease in value of the British pound in multiple international stock markets and job slashes throughout the nation.

This economic fall was directly influenced by the economic meltdown in the United States, primarily triggered by the housing crisis and collapse of major financial institutions.

The U.S. is a top trading partner of the UK. As a result, the UK trade deficit rose to its highest level since 1980. The economic performance of a country is measured by the total exports and import of goods and services: the bigger the exports and lesser the imports, the better the economic performance.

Last October, the UK exports deficit was recorded up to £7.6 billion ($11.29 billion USD).

On the other hand, as exports fell to low levels, the manufacturing output decreased in November to 7.4%—the United Kingdom’s highest manufacturing decrease since 1981. As exports dropped, the GDP fell also. The Office of National Statistics reported that the UK GDP dropped to 0.6 in the third quarter, in contrast with the second quarter of 2008. This is the largest drop in 18 years.

James Knightley, an economist at ING, said, “Industrial output has now fallen for nine straight months, which is the worst run of data since 1980, so the pressure for further stimulus will continue” (BBC).

In November, British exports to the U.S., Japan and the European Union decreased significantly. Since the UK has a service-oriented economy, as expected from a developed country, the drop in exports will affect greatly its employment and purchasing power. The British Chamber of Commerce (BCC) predicted 3.1 million will be out of work in 2009.

British Prime Minister Gordon Brown has addressed a plan to stop unemployment by spending £500 million ($743.3 million USD) to stimulate the economy and the government guaranteeing small business loans. Mr. Brown said this will encourage people to have their own businesses. The government will offer £2,500 ($3,716 USD) incentives to companies if they will recruit people who are unemployed for six months. The Bank of England has decreased its interest rates to 1.5%—the lowest in its 315 year history.

But even then, experts said there are signs that Britain will have one of its worst years in 2009.

David Frost, BCC director general, said, “I have worked through three recessions now and 2009 looks like it will be one of the toughest years I have ever seen for the UK. Some of the strain can be avoided, but only if the government can address the two key problems of confidence and cash flow. We must avoid losing viable companies during this downturn” (Guardian).