In 2009, recession shook Britain as the economy shrank at its greatest rate since the war, bringing business closures, spiralling unemployment and a housing market collapse. The year 2009 was shocking for the world economy. Global output fell for the first time since the 1930s depression, yet it was possibly not quite as hard-hitting as many had feared twelve months ago, when the whole fiscal system was close to breaking down.

The authorities’ reaction was immediate. They cut interest rates, boosted money supply and spent further, in particular subsidising consumers who wanted to buy a new vehicle. How economies will respond when such stimulate is removed in the approaching months is yet to be seen. In the United States unemployment has soared to ten percent – not as bad as the 1930s when the figure was twenty-five percent, but a shock nonetheless. More gloom is on the way, with public borrowing en route to knock £178bn; Alistair Darling, the Chancellor, using his Budget and pre-Budget report to declare plans to borrow another £700bn, a new fifty percent top tax rate for those earning more than £150,000 and a penny on national insurance.

The two key parties remained split over the best approach to financial revival; the Tories accused Gordon Brown of irresponsible borrowing, while the Government claimed that David Cameron’s plan to cut the deficit would stifle the recovery. Experts spent all year telling the Chancellor he had to increase taxes and slash spending. In reply, Alistair Darling trotted out a Fiscal Responsibility Bill, vowing to halve the gaping deficit in just four years. To pay for this he mugged the middle classes, slapping a 50pc tax on those earning above £150,000 a year, raising National Insurance and dragging 70,000 extra into the 40pc tax band. He also pledged big expenditure cuts – but not until after the General Election.

Pay, predominantly for bankers, remained a continuing argument. With Christmas in view, Mr Darling used the pre-Budget report to tax bankers’ bonuses. Banks like Barclays and Goldman Sachs didn’t assist by restoring large bonuses after profits. The tax came months after G20 leaders in Pittsburgh called for bankers to show control. Higher taxes and extra regulation led to warnings of an exodus of bankers from London, delighting rival financial centres. Mockingly, resurgent banks aided Britain improve its services sector. The ex-CEO of the Royal Bank of Scotland was the closest Britain got to a public villain in 2009. The scene of him enjoying a £700,000-a-year pension first surfaced in February and kicked up a storm of objection for nearly six months. Shareholders voted down the plan in a protest vote after RBS posted a record £24bn loss – the largest in UK corporate history – and cut tens of thousands of jobs. The vote had no lawful power, but Sir Fred finally handed back £4.7m.

There WILL be so many hurdles confronting the British economy next year that it is hard to know where to begin. 2010 is going to be a hard year. If 2009 was the year of the unexpected, 2010 may turn out to be a year of the unwanted – all ghosts that we feared may actually return to trouble us. Forecasting the UK economy in 2010 in the midst of such economic uncertainty and financial upheaval is, to put it mildly, a challenge.

Britain’s economy is set to keep shrinking well into next year, despite all or most of its principal competitors having begun benefiting from renewed growth and recently the International Monetary Fund has issued a statement urging caution. In a brutal blow to Gordon Brown’s hopes for an economic revival to take hold by Christmas, the IMF will forecast that the UK economy will shrink in 2010 by an additional 0.2 percent. A 3.8% contraction this year that would be the sharpest since 1944, much worse than the 2.8 per cent that was forecasted only in January. The new, even harsher prediction comes ahead of official unemployment data that is set to show that numbers out of work soared above two million during January. Mervyn King, the Governor of the Bank of England, warned of the danger of a return to an era of mass joblessness. Speaking to bankers at the Mansion House in London, he highlighted the “extraordinarily sudden, severe and simultaneous downturn of activity and trade in every corner of the world economy” since last autumn.

Several key threats linger that could disrupt – and even wipe out – the recovery. The inner crisis is that we have borrowed ourselves out of a calamity caused by too much debt. One consequence of this has been the outburst in the budget deficit to around £190bn for the subsequent years, an absurd situation of affairs. Whoever wins the next election will have to cut public expenditure; if this does not ensue, or if we end up with a hung parliament, we will face a genuine government debt catastrophe, with dismal consequences for the UK and everyone who lives and works here. The deficit has only been controllable thanks to quantitative easing, which has mopped up the new gilts. What will happen when this ends and interest rates rise? How will we manage? Another concern is that there has been no real ‘retail recession’. Consumers have slashed back but the savings ratio, while improving, remains low. In the years ahead, we will have to save a lot more.

Another effect of the government’s policies has been that – unlike in the US – the UK housing market is once more in a bit of a bubble. The 6-7% spring back in prices in recent months is ridiculous; prices could simply fall by another tenth or so next year. This is one of the greatest risks opposing the UK; banks could be hit by an additional wave of write-offs, causing major problems.

Inflation has returned! This is partially due to QE– but not how most people believe it to be. Money-creation causes CPI when individuals and companies end up with too much money in their accounts (or pockets) and start to pay out some, bidding up the value of goods and services. However as QE has certainly prevented the quantity of money circulating in the economy from crashing, it has not led to a great rise. What has altered is that the speed at which the currency is shifting hands has gone up – and there has been growth in very liquid assets that have the same economic effect as money. But QE has also led to a slip in sterling, the biggest driver of the consumer price increases. Another challenge is the reduced magnetism of London as a city to carry out business, which will force away jobs and investment. Many worldwide firms in Asia and elsewhere are listing on exchanges other than our capital; perhaps a forerunner of things to come.

Real GDP quarterly growth

The economy is expected to recover in 2010, but give the depth of the recession; output is well below full capacity. It would take a long period of economic growth to overcome the spare capacity.

Yet global growth is likely to be good this year, helping to support Britain. In fact, that will be the only genuine good news of the year. We have to attach all of our hopes for 2010 on recovery in economies other than our own. Globalisation has had a bad press recently, yet without it we would be in even deeper trouble. If this decade has taught us something, it is that the country is over reliant on the financial City and the tax revenue it generates for the Treasury.

Yes, we are coming out of this recession – we’ve spent so much money, of course we are. The trouble is that as the economy recovers, banks feel more comfortable about putting businesses into receivership, whereas companies, rather than hiring a lot of new people, will continue to run as lean as possible. Another big uncertainty is how savage cuts in public spending will be and how far taxes will rise. Those two things will put a damper on any recovery, but they’ll be necessary to repay the ludicrous amount of public debt we now have.


It’s been an awful twelve months for the UK economy. 2010 should see some sort of economic recovery. But, few are expecting a hasty rebound. These are some of the problems facing the UK economy going into 2010.

Depth of the Recession

Normally, the UK economy expands at a regular underlying trend rate of about 2.5%. Even zero growth will lead to a growth in spare capacity and unemployment. After six successive quarters of declining GDP, the output gap is considerable. This means output is noticeably below potential, so firms will be hesitant to hire. There is a risk that the recession will lead to a lasting loss of output and jobs, and contract the UK’s productive capacity.


The Bank has an inflation objective of 2%, but it is unemployment which creates the greatest social / personal gloom. So far, the increase in unemployment has been comparatively hushed, at least, given the extent of the recession. However, this sluggish rise in unemployment means it will be slower to fall. After the 1992 recession, unemployment fell moderately quickly, but after this recession, the fall in unemployment is likely to be slower – more like the experience of the 1980s where unemployment remained close to three million for numerous years. In particular, it is young workers who have been hardest hit. The fear is that long-lasting youth unemployment could lead to a return to the unemployment related social conflict, distinctive of the early 1980s.

Budget Deficit

In the past few years, the UK’s public finances have taken a real mauling, leading to record peace time deficits. We relied on bubble taxes (property taxes, income tax on bonuses etc) to help stimulate inflation beating rises in government spending. However, these tax sources have dried up leading to a budget deficit approaching £200bn.

The predicament is that, although the budget deficit continues to rise en route for 100% of GDP, reducing the deficit too early could push the economy back into recession. For example, if the Conservatives were to execute their plans for expenditure cuts next year, the deflationary consequence could well thrust a fragile economy back into recession.

Problems of Prolonged Borrowing

Economic need will make it difficult to deal with the budget deficit. But, this means the budget deficit will persist to grow and this brings potential problems. If debt grows too rapidly towards 100% of GDP, it may affect the UK’s credit rating. This would make it more costly to borrow and pay the debt interest payments.

In the longer term, there is an also a fear relating to the amount of the debt and QE. Escalating the money supply raises the prospect of future inflation and a weaker sterling. At this instant, there is slight real fear of inflation and a weak pound is helping the economy to pull through. But, there is a danger that constantly high levels of borrowing could weaken the pound and generate future inflation.

Trade Deficit / Unbalanced Economy

The UK has been running a current account deficit, more or less since the recession of 1981. The economy has relied on services and the financial sector. We have struggled to remain competitive in the manufacturing / industrial sector leading to a trade deficit. Often the problems of trade deficits / decline in manufacturing are exaggerated, but the UK economy still feels uneven and this is one explanation why the UK economy was hit by the recession much further than other countries.

Propensity to Boom and Bust

The sustained shortage of supply means the UK will be susceptible to future booms and busts. It is hard to believe house prices have raised so much in the middle of a recession – a sign of the basic imbalances which exist in the housing market.

Weak Sterling

At the moment, I don’t see the weak sterling as an economic difficulty. The depreciation has helped to limit the fall in economic growth and, over time, will help to rebalance the economy and diminish trade deficit. But, if sterling continues to be pathetic over the longer term, there could be inflationary risks and a decline in living standards as imports become more costly.

Demographic Changes

An ageing population and unfunded pension deficits will make the government’s public finances more complicated in the future.

These problems could equally be applied to the US economy. I think one significant issue is to be clear on which problem is the most severe. For example, government borrowing is a distinct problem. But, although it is very serious, it is more essential to be troubled about the loss of output and unemployment foremost.

The coming months will sure shape the Economy, but who knows what they will bring? With the upcoming election a change of policy might backfire or shoot the UK back to the top.

Don’t use the word ‘recession’ for the Indian economy. In economics, a recession generally describes the decrease of a country’s gross domestic product (GDP) for at least two successive quarters. By that explanation, India is not in a recession. Whilst the country’s public danced in trance at the colourful festival of Ganesh Maha-Utsav, the genious finance minister, Pranab Mukherjee released news that India was to lend up to $10bn to the IMF. Things seem fairly upbeat for this rapidly growing country.

India’s economy has been hit by the slowdown yet it is still growing! How? Why? At a time when the world economy is likely to shrink for the first time in six decades, India is moving in the other path, forecasting 6 to 7 percent growth in its GDP this year. With an average yearly GDP growth rate of 5.8% for the past two decades, India’s economy is among the fastest growing in the world. It has the world’s second biggest work force, with 516.3 million people working in some of the biggest sectors in the world. Why is India doing so well though, even in these tough times? Well it’s a combination of many factors.

Due to the participation of the industries and the rigid environment, the economy is moving towards non-stop development. Furthermore, highly competent, specialist and English-speaking experts have formed a spine for India. With the help of increasing purchasing power, the Indian market has changed into a vibrant, rapidly growing consumer market. India also exports and imports large volumes of consumer goods and advanced technology to keep current its manufacturing power. IT has also been significant in the speedy globalisation of India, with exports from this area alone expected to top $60 billion by 2010.

On top of this, traditional sectors such as agriculture, industry, banking and natural resources have all been growing. India ranks 2nd in worldwide farm output and it accounts for 60% of this sector’s employment. India’s large service industry accounts for 54% of the country’s GDP and again employs many people. It is also thought that a turnaround in productivity has been instrumental. The main cause is the increase in efficiency of private sector firms in the face of growing competition. The underlying causes for this increase in efficiency have been the acceleration in international trade, financial sector growth and investments in information and communication technology.

So, it is very easy to see why India is growing so fast. The up-coming economy, with help from its vast amount of resources and population, is building up to such an extent that reports forecast that India’s GDP will surpass Italy, France and the UK by the middle of the next decade (around 2015). It will then overtake Germany, Japan and finally the US before 2050, to emerge as the second-largest economy after China.

India is faring better than much of the world for a couple of reasons. Its financial sector had limited contact to the failed subprime loans that shattered many banks. Moreover, it is still about 60 percent rural, served largely by family firms and thus beyond the shocks of globalization.

However, it’s not all good news for India. Although this week India’s major business groups say the worst is over for the country, as it achieved 6.1% growth for this quarter, there are other problems that are affecting India.

1. Reduced output
2. Reduced job opportunities
3. Stock market still hasn’t fully recovered
4. Real estate market’s business has begun to slow down
5. GDP has come down and the GDP forecast for the next two quarters are only average.

The effects of the downturn were always going to hit India, but for many it is better than originally thought. Problems were always going to be faced, but for now India’s economy is moving from strength to strength. The country hopes that the last year has only been a blip, as they try to put behind the effects of a worldwide recession.

Being an avid fan of sports, especially football, I must recommend this ‘special report’ from the BBC! Some really good analysis and views on all sorts of issues in sport at the moment.

Business of Sport

The UK Economy grew by 0.3% in the last three months of 2009, faster then Economists estimated.

The grow was stimulated by due to stronger growth in services and production.

However, the size of the overall contraction in gross domestic product (GDP) during the recession increased, from a 6% fall to a 6.25% drop.

Alastair Darling called the news ‘encouraging’  but also warned against cutting too soon, something that the shadow chancellor called to do.

However, it is all possible that there will be a weak growth figure in the first quarter for the UK, as the ‘after Christmas’ and VAT increase toll takes effect. Looking back it seems as though we were in a deeper recession that first though, hence the weak and fragile recovery.

The figures show household spending strengthened growth whereas investment and net exports, cut it down. All in all, the next few months will be a turbulent albeit interesting time for the Economy.

Someone recently told me quite an interesting story. Their company, a massive TNC, is a growing business with branches all over the world. Before the recession a few years ago their business was based around the West. If the team in America needed something, they would demand it then and there from the team in Malaysia whether it was 2AM in the morning or any other time. Recently though, with the markets crashing in the west, the tide has turned. They are now so much more gracious! ‘When shall we ring you sir?’ ‘I hope i wasn’t too much of a pain!’

Things are changing and they ought to be. Latest figure show that India grew 6.4% and China 8.7%. However the biggest surprise was Taiwan. Today it was announced that Taiwan’s economy grew a staggering 18% in the last quarter of 2009, a massive increase on the 8.25% expansion between July and October.

The New SuperPowers?

Thailand’s economy also grew sharply in the final quarter of 2009, expanding at an annual rate of 5.8%. Analysts said Thailand’s growth – which saw it exit recession – was also fuelled by increased exports to China. China’s economy, which is on course to overtake Japan to be the world’s second largest, grew 10.9% in the last three months of 2009.

It now seems only a matter of time before the East take control of the West!

Darling’s Dilemma

Great Cartoon Guide from the BBC