UK economy at downturn

SPECIAL REPORT

The UK economy faces a turning point, after a decade of growth trends across various indicators.

Key areas of weakness include a housing market that is over-valued, rising unemployment, and high energy prices.

Property

It’s already been a frequent point of warning in global economic reports that the housing market is over-valued in many countries, and the UK has especially been indicated as dangerously over-valued, by groups such as the IMF.

Although the housing market has seen periodic spurts of growth over the past year, the general consensus is that the second-half will see property inflation go flat or even begin a process of deflation.

The property market has been an instrumental engine behind the consumer boom of the past few years, as homeowners took second mortgages out against their increased property value, encouraged by low rates from the Bank of England.

But now the UK housing market is both saturated and at a point of near exhaustion - and now very susceptible to any kind of adverse conditions.

Unemployment

Unemployment is traditionally seen as linked to consumer spending - with more people out of work, people have less money to spend on non-essential goods and items.

While the UK economy does currently show a strong labour market, it also shows that it’s cracking.

Hundreds of jobs are being axed by smaller companies, especially due to relocation or simming down on production, and large corporations such as NTL, Orange, and ICI have also announced that thousands of staff will go.

This is on top of a continuing NHS employment crisis that is seeing debt-ridden hospitals chase job cuts as a way to reduce running costs, with almost 10,000 job losses already announced, with more to come.

It looks likely that as economic factors become less favourable, we are going to see companies shedding jobs on an even larger scale, in an attempt to retain profitability in global markets.

Energy Prices

The rise in oil prices has been compounded by gas supply problems to the UK, resulting in energy bills facing a 40% increase over last year.

There are continued concerns that demand for oil now outstrips available supply, and that existing reserves cannot serve still growing markets in the West, China, and India.

Additional political tensions between Iran and the USA mean that unless a resolution is found, America could launch air-strikes on one of the most important oil producers in the work - an action that can only panic oil futures markets.

And, of course, high energy costs will serve as an engine to increase inflation - the absolute key danger factor that the Bank of England is focused on controlling.

Overall

Short-term surprises have kept the traditionally cautious and slow-reacting Bank of England even more guarded about further moves.

Current economic indicators continue to be mixed, and without a clear trend to follow, the BoE is maintaining a wait-and-see policy.

In the meantime, economic factors such as property, employment, and energy, are likely to be a key set of criteria to watch, as they directly influence consumer spending over the coming year.

These are all the more important because of the alarming amount of consumer debt that has powered recent prosperity - a debt that is already being paid in a sudden surge of bankruptcies.

However, the likelihood is that the boom days are over, and that an inevitable bust end of the economic cycle will demand its time.

While the cautious have been warning of an adverse economic future since 2003, it looks as if the economic realities are finally indicating the economic correction for the last decade’s prosperity is now on our doorstep.

The UK economy is finally showing up the fact we are now almost certainly at a crossing point - a downturn in economic conditions, prosperity, and growth.