British economy shrinking fast
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Kai Ryssdal: You know, in reality, today’s market turmoil’s been going on for the better part of 24-hours now. Because, as we all know, just because the closing bell rings on Wall Street doesn’t mean trading actually stops. There are after-hours sessions. Then Asia opens up — where the Nikkei lost 9.6 percent last night.
As those markets are hitting their stride, Europe gets going. London was one of the hardest hit. The FTSE index of the top 100 British shares ended the day down five percent on the nose. The British pound tumbled too. It fell to a six-year low against the dollar.
And today’s GDP figures did nothing to lift the gloom, the first decline in British GDP in 16 years. Even the government admits a recession in the U.K. is on the way, and some economists say it could be the deepest in the Western world, more severe than any downturn here, scary as that thought may be.
From the European Desk in London, Marketplace’s Stephen Beard has more.
Stephen Beard: This is the Four Crosses pub just north of Birmingham. A few weeks ago it was dying on its feet, barely a handful of customers every lunch time. Then the pub introduced the ‘credit crunch menu.’
Waiter: One liver and onion, two fish and chips and one minced beef pie.
Every full steaming hot plate of food costs just one pound, that’s about $1.60.
Tony Rabbits: We needed a promotion of some sort so we decided to just try one pound menus just to get people in.
It’s been a spectacular success for the pub manager, Tony Rabbits. Now every day more than 600 people turn up for lunch and dinner.
Customer 1: Well it’s very good value for money.
Customer 2: Money’s tight at the moment, so yeah, definitely.
Customer 3: I think we’re all feeling the pinch. Jobs are a great worry with people at the moment. But I think the whole nation will be feeling the effect of this global recession.
And Britain will feel the effects worse than any other leading industrial nation — that’s the view of The National Institute of Economic and Social Research. It has forecast the British economy will shrink next year by one percent. Director Martin Weale says that’s the biggest anticipated fall in output for any G7 country, including the United States.
Martin Weale: Yes, in the United States we’re expecting a fall in output of half a percent, which of course is still a recession, it’s just not as bad as that in Britain.
Why? Because Britain has been on an even bigger binge than America.
Weale: The British economy has been keener on credit and household debt even than the United States. So therefore, we’re even more affected when credit markets jam up and people can’t borrow.
The extend to which the Brits have been lured into debt is amazing. American’s have borrowed $1.35 for every one dollar of household income, but the Brits have bored $1.70. This massive over indebtedness is mostly due to a particularly British obsession. Fueled partly by TV shows like this and by dreams of instant wealth, the Brits borrowed and bought property like crazy. House prices in over-crowded Britain soared; while they doubled in the U.S., the tripled here. And so, says property economist Ed Stansfield, the U.K.’s heading for a much bigger crash.
Ed Stansfield: Now that the credit crunch is upon us and banks are falling over themselves not to lend rather than to lend, we think the absolute least you can expect in the U.K. is a decline of around about 35 percent from peak to trot in average house prices.
He says it will be the biggest national house-price collapse on record, impoverishing millions of once-smug homeowners and crushing consumer confidence. The Brits will have learned the painful truth of that old American adage, there’s no such thing as a free lunch.
Customer: Alright, can I have one fish, one cottage pie and one cheesecake for desert please?
But there’s always pie and chips for a pound at the Four Crosses pub. The manager is happy. He says his booze sales are up five-fold since he introduced the credit crunch menu. Many similar promotions are expected around Britain in the coming months.
This is Stephen Beard, for Marketplace.