The credit crisis in the financial markets has now become a crisis in the broader UK and global economy. The UK is now officially in a recession. The fall in Gross Domestic Product (GDP) in the last three quarters (4.2 percent decline) is far deeper than the decline experienced during the whole of the 1990s recession (2.5 percent). Over the course of the recession, a cumulative decline in excess of six percent is now a strong possibility. In the 1980s recession, output fell by more than five percent and the national unemployment rate rose from four percent to 10.6 percent. This recession starts from a lower level (2.5 percent claimant count) but a rise of more than one million over the next two years can be expected. The ILO measure of unemployment (household survey based) is already 7.1 percent, or more than 2.3 million.

In the Budget, the Government’s growth forecasts suggested that the economy would contract by 3.5 percent in 2009 and then bounce back, growing by 1.25 percent in 2010 and 3.5 percent in 2011. Consensus suggests that these forecasts are exceedingly optimistic. The International Monetary Fund (IMF) has suggested that the UK economy will in fact contract by 0.4 percent in 2010. While conditions in the banking sector appear to be improving, the problems within the financial system, which have constrained the supply of available credit, are far from solved. However, there are tentative signs that we may have turned a corner. There have been improvements in a number of the leading indicators (c redit conditions, housing approvals and purchasing managers surveys). This suggests that at least the pace of decline in output has now slowed. We still expect a very modest recovery starting in 2010, with unemployment likely to continue rising until 2011.

01/05/2009

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Urban Policy > Economy knowledge & employment

Urban economy