I’m just back from visiting family in England, and got to have a first-hand look at how the economic crisis is playing out on the other side of the Atlantic. Suffice it to say, it is the dominant story. Before we left, the Bank of England cut short-term interest rates by 1.5% and it was revealed that they had contemplated a 2% reduction but did not want to spook the financial markets. The next week they did spook the financial markets by projecting a contraction of GDP of 2% for 2009. As a result the value of sterling continued to fall against other major currencies, with a total drop of about 30% since the summer. The decline over the few days before our trip alone saved us a couple hundred dollars.
In other news, there were layoff announcements almost every day, and like New York there is a big hit to a financial sector that had become complacent after years of fat bonuses. Housing prices are down 15% over last year and new starts have dried up. While we were there inflation dropped a full percentage point on the most recent announcement (to 4.5%, which is somewhat quaint from a Canadian perspective). As we left yesterday, the major retailers were in panic mode offering up big sales as pre-Christmas activity was well below targets.
The economic situation has also reshaped the political landscape. A faltering PM Gordon Brown has had new life breathed into him, scrapping back from being behind in the polls to David Cameron’s Tories. Brown is coming off a financial rescue package that has become THE model for government intervention with the government getting equity stakes in the banks, guaranteed returns and seats on boards (unlike the Bush-Paulson plan, as Naomi Klein points out).
Brown is now pushing a fiscal stimulus package of tax cuts (apparently aimed at low-income families (though I am skeptical) and spending increases, while Cameron is pressing for revenue-neutral tax cuts (i.e. no stimulus) and is looking very Thatcher-esque. That said, I personally found the Liberal Democrats the most convincing in terms of an plan, with a focus on green infrastructure spending, but like the home front the LDP is a third-party looking on the race from the outside. Brown’s package will be announced on Monday, and comes on top of a deficit already over 3% of GDP (like in the US the deficit is not much of an issue in England despite attempts from the Tories).
In sports, better news. England beat Germany 2-1 in a friendly, capping off a solid year for a national team that missed qualifying for Euro 2008. John Terry made up for a gaffe that led to the German equalizer by potting a fine header late in the game. A well-played game for the English side, who played aggressively and at times were dominant, in the first win for any foreign side in Berlin for many a year.