UK Economy
Highlights
The likelihood of the UK suffering a recession is rising
The risks that the UK could suffer a recession are rising significantly. The combination of the squeeze on the housing market from the credit crunch with the pressure on household real incomes from rising energy and food prices means that we now expect GDP to rise by only 1.6% in both 2008 and 2009. The housing market is already in deep recession, with house prices down 8% or more since last autumn. With mortgage costs rising and market sentiment now so negative, we expect prices to fall by a further 10% over the next year, which will add to the downturn in consumer demand that at last appears to be underway. It is very uncertain, however, how quickly consumers will retrench to restore their finances, and a repeat of the early-1990s experience would trigger a deep and prolonged recession.
21 July 2008
Which parts of Great Britain are vulnerable to the credit crunch?
Oxford Economics have constructed a vulnerability index for GB local authorities, based on the proportion of jobs in sectors most at risk from the credit crunch, spreading from financial services to real estate, other business services, construction and retail and other consumer related industries. Outside central London, a number of smaller centres show up as being vulnerable, including Chester, Bournemouth, Calderdale and Macclesfield. These tend to be relatively prosperous areas with high concentrations of jobs in banking and auxiliary services. Cities are generally more exposed than rural areas but there is a considerable range in level of exposure, with Leeds, Edinburgh and Bristol more exposed than more industrial and public sector-focussed cities, such as Sheffield and Liverpool.
20 July 2008
Regional winners and losers in UK public finances
Oxford Economics' analysis shows that it is only the wider South East regions (London, the South East and Eastern) that made a positive net contribution to the UK public finances in 2006-07. It is not surprising that the South persistently provides fiscal support to the rest of the UK given the relative strengths of the different regional economies and the broadly redistributive nature of government policies towards taxation and spending, but the scale of this regional fiscal redistribution has been increasing over recent years. Looking forward, a rising UK fiscal deficit is likely to be reflected disproportionately in the South, and in London in particular, given the impact of the credit crunch on financial services, but we still expect the South to make a net positive contribution to the Exchequer.
20 July 2008