British economy has shrunk for the first time in the past 16 years since 1992, according to official figures released by the Office for National Statistics on October 24, which are of great concern to Britons.
British economy shrank between July and September, official figures showed last Friday, confirming that the country is on the verge of recession. Britain's third-quarter gross domestic product (GDP) dropped by 0.5 percent between July and September. This would be the first negative growth in 16 years and the biggest drop in 18 years.
Britain has sunk into a recession from any sensorial angles, an editorial in London's Financial Times pointed out abruptly and explicitly.
British economy had "all-black" appearances in the third quarter as indicated by latest statistics available. The service sector, which accounts for three quarters of the UK economy, is down by 0.4 percent in the quarter from the second quarter, the biggest decline in 18 years. The hotel and catering industries were hit seriously with a drastic drop of 1.7 percent. Commerce and banking services fell by 0.4 percent, construction industry by 0.8 percent, and manufacturing by one percent. Only the sector of agriculture rose 0.5 percent.
To judge from other economic aspects, British economy is likewise worrisome. Its unemployment rate rose 0.5 percent over the quarter up to 5.7 percent from June to August, and additional 164,000 people lost their jobs in June, July and August, which poses a record high over the past 17 years.
Some economists predict that unemployment will hit 2 million by the Christmas this year and, within the next year, the jobless count will soar well over the two million mark towards three million as Britain has lapsed into recession or depression. To look at inflation, the consumer price index (CPI) surged to a 16-year-high point of 5.2 percent in September owing to soaring energy bills.
Due to a pinch attack of numerous factors from varied spheres, the sensitive British stock exchange and currency markets were seriously affected and took a precipitous plunge. On October 24, Britain's FTSE 100 closed down 5.0 percent at 3883. The British pound, once "very bright," has also begun to "fade". In fact, the Pound dropped to a five-year low against the U.S. dollar as investors brace for interest rate cuts in the wake of the economic data and took their money elsewhere in search for high yields. Its exchange rate to the U.S. dollar for the first time in the past five years fell to below the 1:1.6 mark.
Overall, the "extremely ferocious" financial crisis has wrought harms to the British economic entity. Most economists deem what requires discussion or deliberation is not whether British economy would slip into recession but how long the recession would last. Some researchers have forecast that the present financial crisis would be much severer that those crises of the 1980s and 1990s in term of gravity, and it could possibly last for one year and even longer.
Although the current situation in Britain's economy is grim and stark, acknowledge some analysts and critics, there is still a way for it to reduce havocs to the minimum.
First, there is still a room for the interest lever to maneuver. The Bank of England recently slashed UK interest rates by half a percentage point to 4.5 percent in its first emergency rate cut since the aftermath of the 9/11 in 2001. And the bank is expected to cut interest rates by a further 25 basis points in both November and December. It is also likely to reduce interest rates further to 2.5 percent by the end of next year.
Second, a favorable impact would emerge with the decline in oil prices. To date, crude oil prices have continued the sharp drop, falling to 63 dollars per barrel in Britain. With a cut in gasoline prices, the price of home-use electricity will hopefully drop in the winter, and it is of a great help to low-income families in Britain.
Third, Prime Minister Gordon Brown's government has gone all out to resolve the financial crisis. It has taken both monetary means and financial measures, and unveiled plans for a huge bailout for key British banks, which could be continuously effective with the passage of time. Meanwhile, the Brown government has also resorted to tax cuts and pension increase with an aim of returning wealth to people.
To rid Britain of the current economic crisis, it is not only a "tough economic battle" but a "tough political battle" for Prime Minister Brown, noted experts. The bailout plan submitted by his government has won recognition of all walks of life in British society, and even international community followed suit. Latest polls indicate a better or improving support rate for Brown, but he is sure to exert himself and make an all-out effort since 2009 is a very crucial year in Britain for the next general election is due by mid 2010 at the latest.
By People's Daily Online, and its author is PD resident reporter in UK Wang Rujun
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