The UK After The Recession-Part 2

28 01 2009

 A stable but anaemic economy


As can be seen from the graph below, business investment growth in the UK has reached a lower plateau in the past ten years compared with the previous 20 years.[3] 

Total Business Investment percentage change, quarter on corresponding quarter of previous year

2582

 
The UK economy grew for 63 quarters prior to the third quarter of 2008. GDP grew at this time at an average of 3%.  While this may look a respectable growth rate the growth has been increasingly debt financed and in unproductive sectors of the economy. Also bear in mind that the current fall of GDP growth to 7.5% in China is considered a potential crisis.
It is clear as well that there has been a flattening out of growth and retraction through this period. It is this flattening which Gordon Brown used to claim the end of boom and bust. Another way of looking at it is an economy which had no great engines in it to make it leap forward. This is what has been revealed as the case by the credit crunch.

 new-picture1

Productivity has improved against western based competitors but remains at a lower rate.
 
 

 new-picture-11

Foreign Direct Investment

The UK is the second largest recipient for foreign direct investment in the world, behind the US. In the last year it was $224b.[5] A recent survey by KPMG predicts that the UK will be second preference for financial services investment, first for property and first for transport. It listed the factors involved in making these decisions in descending order as follows. [6]

Access to new Customers
 Political stability
Impartial rule of law
Infrastructure
Regulatory climate
Tax regime
 Quality of labour

In the past year investment in UK technology, media and telecoms rose, mainly from the US, by three times to £12.6b due to low valuations. This compares to £40b at the height of the dot com boom in 2000.

Footnotes:
 [3] http://www.statistics.gov.uk/CCI/nugget.asp?ID=258

[4]The UK economy, analysis of long-term performance and strategic challenges march 2008 HM Treasury p5

[5] FT 25 September 2008
  [6]http://www.kpmg.com/Global/PressRoom/PressReleases/Pages/NewKPMGInternationalsurvey.aspx

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