Britain falling into US-style slowdown

Britain falling into US-style slowdown


PARIS – A HOUSING market in shambles, inflation at the highest level in years and signs that the economy is headed for, or already in, a recession. Sounds familiar? No, it’s not the United States but Britain.

Indeed, it was the run in September last year on a British mortgage lender, Northern Rock, that helped to embed the terms ‘credit crisis’ firmly into the global consciousness.


‘A recession will more likely than not arrive by the end of the year,’ Mr Peter Newland, who covers the British economy for Lehman Brothers in London, said on Thursday, summarising a string of dismal economic data that had led economists to revise their growth forecasts downwards.


The FTSE 100, the benchmark London stock index, has fallen 19 per cent from a high of 6,732.4 that it hit in June last year – just short of the 20 per cent decline commonly said to define a bear market.


Consumer confidence is at the lowest since 1990, as oil prices drive towards US$150 a barrel and unemployment has risen for the past four months.


Like in the US, the main force dragging down the British economy is the collapse of the once red-hot housing market, which enriched many Britons as long as credit flowed nearly as cheaply as in the US.


According to the Nationwide Building Society, a leading British mortgage lender, housing prices have fallen for eight straight months.


Last month, they fell 6.3 per cent from a year earlier, the biggest drop since 1992, taking the price of a ‘typical’ British home down to £172,415 (S$466,141), a decline of more than £13,500 from the top of the market.


The British central bank said on Monday that mortgage approvals in May were at the weakest level on record – only 42,000 for all of Britain, down from 58,000 in April.


As the housing market sputters, consumers have retrenched. Shares in Marks & Spencer, the iconic British retailer regarded as a bellwether of the domestic economy, plunged more than 25 per cent in two days, after it reported a sharp decline in sales.


Unions are agitating for higher wages, even as inflation rose at a 3.3 per cent annual rate in May, above the 3 per cent upper limit of the Bank of England’s comfort zone.


And despite the growing distress of British workers and businesses, economists hold out little hope of monetary policy relief. Economists surveyed this week by Reuters were unanimous in predicting that Bank of England governor Mervyn King and his colleagues on the Monetary Policy Committee would hold rates unchanged at their meeting on Thursday.


Economists said the economy was lagging slightly behind the US business cycle.





Source: Straits Times

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