Britain facing recession

by Business Case Studies on Wednesday 12th November, 2008

At a time of global downturn, Britain is facing recession and the Government is taking action on various fronts to try to lessen the impact on the economy.

Last month, the government made available a £400 billion rescue package for British banks (Times Online, 12 October 2008)  Last week the Bank of England cut the interest rate by 15 per cent to 3 per cent – the lowest rate in half a century – to try and kick-start the economy (Times Online, 10 November 2008)  It is expected to take about a year for the full effects on growth to feed through. This week tax cuts are being discussed to help people in these financially troubled times.

The IMF (International Monetary Fund) now predicts that in the UK the GDP (Gross Domestic Product) would plunge by 1.3 per cent in 2009 in the worst performance among the largest developed economies in the world. The dire news from every part of the economy seems to support the forecast of IMF. On the unemployment front, figures this month are expected to show a rise of around 50,000, the sharpest rise since the end of the previous recession in 1992 (Times Online, 10 November 2008).

In addition to the cut in the base rate last week there was a fall in the LIBOR (London Interbank Offered Rate).The banks seem to have responded to government pressure to pass on last weeks interest rate cut through their key mortgage rates in the hope of generating movement in the housing market. However, there is concern that if banks are forced to lend more cheaply, they will offer fewer new loans and it is uncertain if consumers and businesses will want to borrow when the future is so unclear (Times Online, 10 November 2008).

The Chancellor is now expected to use other means – tax cuts and higher public spending – to defeat the downturn, but he will have to find about £11 billion to offer a convincing boost to the economy. Tax cuts need to flow to those who will spend the proceeds, rather than save them, to put the money back into the economy (Times Online, 10 November 2008).

Read the case study on the Building Societies Association  and look at how building societies differ from banks. Building societies date back almost 250 years and were, initially, set up to help people to build their own house. These were temporary societies that closed when members were housed. Later, societies started to accept savings from people not looking to build and these became permanent societies. Today, their main business is to accept deposits and lend funds to those wanting to buy their own home. In 1869, the Building Societies Association was set up to represent the industry.

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