The UK economy has experienced a long period of economic growth from 1993 - 2008. However, this unprecedented period of unbroken economic growth is coming to an end.
The UK economy is experiencing a number of problems
Credit crunch leading to shortage of borrowing and lending
Falling house prices, which is reducing consumer confidence and consumer spending.
Record debt levels which leave little room for manoeuvre in a recession.
Cost push inflation making it difficult for the MPC to cut rates. Inflation well above the government's target of 2%
Increased government borrowing, as the cyclical downturn worsens the governments finances.
Global economic downturn causing lower exports. e.g. even the devaluation in the pound has done little to boost growth.
Persistent weakness in Manufacturing sector - contributing to persistent current account deficit.
In the next 12 months, growth will slow and the economy will enter recession. However, with the slowdown in growth and lower oil prices, inflation will fall enabling lower interest rates. This will help the economy to recover.
The housing market will struggle to recover whilst the shortage of mortgage finance persists. Also whilst house prices are falling people won't want to buy so the problem will be exacerbated.
Falling house prices will also continue to have a negative impact on the economy in 2009.
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