Why is only Britain facing recession?

Why is only Britain facing recession?

The British economy has swung from hero to zero remarkably quickly. In its budget last March, the government boasted that we had the best performance in the Group of Seven leading economies. Now, the Organisation for Economic Cooperation and Development predicts that Britain - alone among the G7 - will fall into recession this year, on the definition of two successive quarters of negative growth. The US, Canada, Japan, France, Germany and even Italy will escape this fate despite the double whammy of the credit crunch and high energy and food prices. So what has gone so wrong here?

The reason is that British growth over the past decade has been unbalanced, pumped up by a spectacular performance in the City, a booming housing market and lavish government spending. Meanwhile, manufacturing's share of the economy has shrunk.

Now it is all unwinding. News this week that Dresdner Kleinwort would sack 1,000 employees was just the latest blow to City jobs in the wake of the credit crunch. Some economists say house prices will fall by 20% this year, construction and estate agency businesses have collapsed, and consumer spending has slowed. In Germany - where they don't do housing booms - prices are merely softening. It's a similar picture in France.

Surely, you say, the credit crunch must be affecting the US worse? After all, that's where the problems started. That has been true so far, but US house prices were never as overinflated as ours and so are not.....continued below

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falling nearly as fast. And, because the dollar has been weakening for years, American exports are booming. By contrast, the strong pound has made Chinese imports of flat-screen TVs even cheaper, making life very difficult for British companies.

guardian.co.uk © Guardian Newspapers Limited 2008