Boiling Point

Published 24 February 2009

The US may command the limelight in terms of economic turmoil but some alarming information out of the UK suggests things may be very bad indeed for the small island nation.

In the last few days police have warned that middle-class anger at the recession could boil over into violence by the summer; restaurant chain Starbucks noted to being more concerned by falling activity the UK than any of the other 49 countries it operates; while a leading union official has warned of an unnamed car manufacturer being days away from going to the wall.

These stories are a fairly typical selection from recent headlines and show the depth and scale of the recession, with unemployment predicted to climb to three million this year.

The above anecdotes also illustrate different aspects of Britain’s economic plight.

The car industry is the latest industry to be hit by falling consumer demand, with UK car plants laying off staff. This week, one firm, van-maker LDV, appealed for a £25m short-term loan from the government, saying it needed the funding to allow it to arrange a management buy-out.

The amount needed may be small, but the government has so far ruled out help.

Meanwhile UK trade minister Lord Mandelson vociferously rebutted comments made by Starbucks boss Howard Schultz over the state of the UK economy however new Labour’s most skilled spin-master put his foot in it as a four-letter outburst in front of the press had the unfortunate effect of actually drawing more attention to the fact that the UK is seen as being in a worse position than many other economies.

The final story, a warning from a senior British policeman, that frustration over the economy could lead to rioting is not surprising, but it seems the police expect known activists to exploit rising tensions.

Economic news in the UK looks like continuing to get worse before it gets better, with both technical indicators and anecdotal evidence painting a grim picture.

A recent series of wildcat strikes at a gas refinery over EU workers allegedly taking British jobs showed a worrying fault line developing over jobs and immigration.

All of these stories show the fragility of the UK economy.

An economist once described the effect of using interest rates to control an economy as akin to pulling a brick with a piece of elastic.

At first nothing happens, but at some point the brick suddenly moves.

Right now, for many UK businesses and their staff, the tension has built up in the elastic to the point where the bricks are starting to move.

Hopefully for Britain’s police forces, this will be figuratively and not literally.

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Inigo Rudio