UK debt is mounting!
While many expats have left the UK for foreign lands we have seen literally hundreds of thousands of people flocking to the UK to try and make a new life for themselves. However, the economic situation in the UK has worsened over the last few weeks and there are now serious concerns that the UK is lagging other developed countries around the world and could remain subdued for some time to come. So what exactly is going on with the UK economy?
Economic growth
Today’s GDP figures (Gross Domestic Product) confirmed that the UK economy is still deep in recession having contracted by 0.4% in the third quarter of 2009. This was against analyst expectations of growth of 0.2% in the third quarter of 2009, which reflects the concern about the ongoing weakness of the UK economy. This is the sixth consecutive quarter that the UK economy has contracted and indeed many analysts believe the UK will end 2009 deep in recession and we could in fact see a W was shaped recession in 2010, with further falls across the board.
The UK housing market
The UK housing market is central to the UK economy and while there have been signs of sporadic demand in some areas of the UK, with the London market in particular hitting highs not seen since 2007, in general there are various reasons for this massive variation in property price performance. Many analysts believe that London, while attracting interest from property buyers, has a distinct lack of quality property available therefore we are seeing buyers push up the price of those properties on the market to unsustainable levels.
Indeed many analysts believe that the UK property market could actually fall by as much as 25% in 2010 which would undo all of the good work done by the UK government and UK authorities in 2008 and 2009. If after investing over £1 trillion into the economy we were to see a further downward lurch this would effectively leave the UK on the verge of bankruptcy and would see taxpayers having to fill the coffers of the UK government for decades to come.
Economic activity in the UK
If you take a look on the UK high street, even though Christmas is two months away, you will see massive discounts and a whole host of offers and promotions. It is no secret that the UK high street is still struggling and many companies are lurching month-to-month in the hope they can get past Christmas and improve their cash flow in the New Year. However, in order to increase their cash flow in 2010 they will need to see an improvement in the UK economy, a feat which appears to be some way off at this moment in time.
The longer the UK recession drags on, the more likely we will see many more big names fall by the wayside alongside the likes of Woolworths. UK banks are also under pressure from the UK government, to both reduce their risk to further failures but also increase liquidity in the business arena, two distinct strategies which are wholly incompatible.
UK unemployment
Even if the UK economy was to turn around tomorrow, UK unemployment will still continue to rise for many months to come and is fast approaching the 3 million mark. Not only does increased unemployment reduce tax income for the UK government but it also increases benefit payments which would push the UK budget further and further into deficit. Already the UK government has admitted that the budget deficit for 2009/10 will be around £175 billion, a figure which many believe is very conservative bearing in mind that Alistair Darling expected the economy to improve in the second quarter of 2009.
UK immigration
Since various EU regulations came into play, which effectively ensured freedom of movement within the EU for any EU citizen, the UK has seen a deluge of visitors from all areas of Europe. The first flurry of immigrants into the UK began a few years ago at a time in the UK economy was booming and many businesses were indeed finding it difficult to fill all of their job vacancies. However, the situation has changed dramatically over the last two years and many of these immigrants who entered the UK for employment prospects have returned home, although the UK population is still set to increase by around 10 million in the short to medium term to a record 70 million.
As unemployment continues to kick into the UK economy, many of those immigrants who have remained in the UK, quite rightfully and quite lawfully, have been forced to sign up to the benefits system even though they may not have been contributing as long as some UK nationals. When you also consider the need for extra local services such as schools and housing there is no doubt that the UK government is starting to feel the pinch with more spending required but less income available at the moment.
Prospects for UK economy
Talk of a W shaped recession is becoming louder as more and more analysts and economists continue to revisit their forecast for 2009 in 2010. The very fact we have a general election on the way in 2010 has focused the minds of many politicians but ultimately, like a large ship, the UK economy will take some time to turn. The quantitative easing program and other fiscal intervention has had a limited impact in the short term although the UK government and the Bank of England continue to talk about supporting the economy with additional capital and additional liquidity for some time yet.
Conclusion
The very fact that taxation in the UK is certain to rise for the next few years, in order to pay off the growing national debt, has seen more and more UK nationals looking to move overseas and begin a new life. We are even seeing mass repatriation of immigrants who visited the UK in the early days of the EU rule change because of the very difficult and worsening employment situation in the UK.
Many people automatically assume that because the UK has been prominent for many years, the economy will turn around on a sixpence, when in reality this is not the case. The current recession is the deepest and the longest in living history with UK government debt approaching £1 trillion. This is a mess which will take some time to sort out and could increase the number of British nationals leaving these shores, and indeed see more and more immigrants returning home, with fewer and fewer people looking to start a new life in the UK, at least in the short term.
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Whilst the recession in the UK is the worst since 1929, because of the poor state of the pound it is very difficult for those looking to move abroad who are reliant on a pension for their income, also the cost of the property has become more expensive. Conversely Ex pats throughout the euro zone have been badly affected and over the next two years there will be more moving back to the UK, simply because their pound is worth 30% less than it was three years ago. In 2006 you could get over E1.40 to the pound, now it is nearly at parity.