Britain's Slump
Friday 3 July 2009 at 09:39 Latest official figures indicate that the UK has had its worst slump in output since the 1950s – a GDP fall of 2.4% in Q1 2009 – with no clear sign that things have improved since then. Economists warn that full recovery will not take place for another two years.
Construction has been hardest hit (-13.2%), then manufacturing (-12.5%) while services fell by -3.1%. The contraction is now worse than that of the late 1980s and early-1990s - even than the worse still contractions of the 1970s and early 1980s.
Investment has plummeted – from 5.3% in Q3 2007 to -13.2% in Q1 2009 – although there is some belief that low inventories mean that industry must bounce back soon. This is a theoretical assessment that may take little account of the anxiety over risk that is now emerging in the country at large.
We are now seeing the investment strategies of Government beginning to collapse like a pack of cards as a result of adverse market conditions. The most politically contentious u-turn is the suspension of the Royal Mail part-privatisation with major questions left standing over the funding of the pension fund.
There is also the leaked memo showing that, once two ‘white elephant’ aircraft carriers have been completed in 2014, there is expected to be virtually no work for the shipyards involved. More disturbing to economic liberals is the re-nationalisation of the East Coast (London-Edinburgh) rail franchise.
National Express’s need to settle with the Government over the terms of its service on the East Coast rail line was a weekend story but July 1st saw the withdrawal of the franchise and threats to National Express’ other two franchises, bringing to an end its hopes of becoming a major rail operator.
The Left likes the re-nationalisation but it is perhaps not understanding what is happening here. Government claims that there will be no cost to the taxpayer as a going concern, but the real story here is that market conditions are undermining the whole public-private partnership model of New Labour.
Market conditions are making it harder to privatise assets on best terms. This suggests an ongoing drain on funds just to keep existing infrastructure (and jobs) going with little left for new investment. Already there are suggestions of many major flagship initiatives being shelved.
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