Britain sinks into an economic hole

By Editorial staff Simon Wilson Jan 19, 2006

Hopes for a strong economic recovery were “dealt a blow this week” as a raft of figures provided fresh evidence of a lacklustre end to 2005 across the UK economy, said Philip Thornton in The Independent.

In industry, factory bosses cut jobs in December as “growth in new orders from abroad slowed and their cost bill escalated to a nine-month high”. According to HSBC economist John Butler, the UK industrial sector continues to “underperform the global recovery” – and the consensus City forecast of 0.8% manufacturing growth this year (after the 0.25% contraction in 2005) is markedly lower than the Treasury’s optimistic 1% to 1.5%.

There was gloom, too, on the high street, as figures showed credit-card spending sharply down in November, and the first surveys of end-of-year shopping activity showed the number of people out snapping up bargains in the week after Christmas a hefty 12.4% down on the same week in 2004.

And don’t think that a buoyant housing market will encourage consumers to take up the slack, said Tom Stevenson in The Daily Telegraph. Indeed, you “don’t have to look far beyond the mortgage equity withdrawal figures to see why retail sales are flagging”.

After an unexpected rise in the amount homeowners “unlocked” from the equity in their homes in the second quarter of 2005, new figures from the Bank of England show that “the window was slammed shut again” in the next three months. The £8.3bn withdrawn represented 3.9% of the UK’s disposable income, down from 4.8% in the previous quarter and less than half the peak of 9% a year earlier. According to Simon Rubinsohn, chief global economist at Gerrard, “this is part of the reason why the rebound in consumer demand over the next 12 months may turn out to be relatively modest”. In short, said Edmund Conway in the Daily Mail, Britain is in an “economic hole”.

Published in Economics | More articles by Simon Wilson

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