Is U.K. on the Brink of Recession?


After 16 years of uninterrupted growth the outlook for the United Kingdom economy is deteriorating day by day. Indeed, businesses surveys have fallen sharply and in most cases are close to record lows. How is it possible that the fifth-largest economy in the world is on the brink of recession?

In the past, cheap credit encouraged people to buy houses. So house prices were rising, people were feeling more comfortable with their money and they started indebting they households even more. London was becoming the financial capital of the world and the inflow of capital was boosting the economy. Yet, once interest rates started rising, the market couldn't sustain itself anymore and people begun to lose their assets. 

So, now it's a payback time and after so much overheating, investments in housing market could go down further. Furthermore, the demand for consumer goods linked to property transactions could fall significantly. In addition, the decline in property value may halt consumer from spending. In fact, mortgage approvals already fell to the lowest since at least 1999 and U.K. retail sales dropped to a 25-year low.


Anna Fedec, analyst@tradingeconomics.com
8/2/2008 4:22:48 PM