Over the last decade Americans are familiar with bad economic news, but the U.K? The Sterling is stronger than ever against the U.S. dollar. While the latest headlines have been focused on Greece and Italy, the British economy is heading towards ruin.
The economy expects a mere 1% of growth within the next year, hardly enough to sustain its generous social program spending. And that’s if it’s lucky, according to the Bank of England. What may be even worse is that the jobless rate for young people, specifically women, has hit rock bottom. Over one million young people are actively looking for work and can’t find employment. England hasn’t seen this level of unemployment from its young people in a quarter century.
British economy on the brink of ruin
While many have defended the UK’s economy, blaming the problem on other countries’ problems (i.e. Greece & Italy) many economist shave stated that the problems started before the other economies have come into play, although they’re not helping. Though the unemployment numbers are bad enough, it’s been a perfect storm where numerous problems are taking hold of the U.K.’s economy. Chief among them is the enormously high inflation rate of 5.2 percent a year. The cost of social programs, which is also going up this year has put a strain on local, regional, and national coffers forcing unpopular cuts.
The stagnate growth of the Euro Zone, high unemployment, high inflation, and poor growth factors from its domestic economy are all playing a role, causing many in Britain to worry about even further social services being cut. To make matters worse a recent survey suggested that nearly three-fourths of businesses believe that England is establishing a permanent underclass of workers, with poor education and background making many unemployable.
While the government has tried to do a number of different programs to help spur employment, including employment apprenticeships, many business have not taken advantage of it because only a slim majority (51%) think that it is cost effective.
UK Great Recession
Like the United States, the UK's "Great Recession" has had a deep impact on families across the country from 2008 to 2009. During that time the British economy shrank nearly 7%.
The severe cuts and even greater taxes is only sharpening the pain. A freeze in pay for millions of workers, of course, will naturally reduce the demand for goods. The willingness for consumers to stop spending is disastrous to retailers who are dependant and sensitive to short term spending habits of consumers. You can expect businesses to shed more jobs if the economy continues to tank. Many British homes, which are over-valued, are locking in consumers to high debt.
The British government has not fallen asleep either. They have taken a proactive approach, with stiff spending cuts and have tried to help small business. But the benefits have not paid off in a meaningful way to stem consumer confidence.
In this first part of the economic crisis, consumers felt the rise in the inflation rates across the board. Then they got squeezed by credit rates, which the Central Bank had to hold steady because of inflation. It was not until the Bear Stearns collapse that the Central Bank slashed their interest rates. It did not do much to keep a recession at bay.
The collapse of the British economy would trigger a tsunami across Europe and the world, including the United States -- an event that could create a domino effect of collapses, which could create a global economic depression, taking America down with it.
A downgrade of British debt to the status of “junk” would send spending and borrowing rates down the financial toilet. Experts go back and forth on the Euro vs. Sterling issue. Some experts believe that because the Sterling is so valuable, it has a little cushion. A falling Sterling might also help with exports and job creation. While other economists say that the fall will sink people further into debt making it more difficult to consumers to pay off existing debt.
Will the UK recover from economic disaster?
In an effort to recover each region and country would then choose sides on a currency war, a warning which Billionaire George Soros predicts will occur, further stifling any type of recovery. That means, it will be a dog-eat-financial-dog world where losers and winners could spark regional conflicts. Countries playing for their own survival will essentially rock the boat to a tipping point, where everyone involved will get tossed into the ocean, likely only to sink.
The fall or rather, implosion of the British economy could propel us into a century of economic toil and hardship.
It’s time for those of those of us on this side of the pond to start paying attention.