UK economy faces huge structural change and five years of slow growth: report

A report into the future of the British economy forecasts fundamental structural change as a result of the recession and slow growth for the next five years.

The report "Transitions", released on Monday by the international accountancy firm BDO and the Center For Future Studies, said that the British business landscape will change significantly, and that firms must not expect a return to business as usual.

The report said forces driving change will continue well beyond the technical end of the recession and the consequences will be permanent and far reaching.

Peter Hemington, a BDO partner, said, "The recession will mark a series of transitions from the industrial structures and models of the past to the digital, networked age of the future. We are living through a dramatic period of creative destruction as a result of which many organizations will either transform or disappear."

After a decade of high economic growth as China and India began to integrate themselves into the world economy, the fundamental imbalances that this trend has created have derailed Western economies, the report said. At the same time, technological change both threatens existing business models and offers opportunities to develop new routes to profitable growth.

The report predicts, "UK business will have to undergo painful change in order to adapt to the new world order that will result from these trends."

There is a structural problem, which needs to be overcome, said the report as businesses are built for a world where cheap goods are imported from low cost economies and where consumer, business and government spending have been financed by debt. The report also said that the consensus view among economists is that the risk of a double dip recession is uncomfortably high.

This could be triggered by a number of factors, warned the report, including a spike in oil and other commodity prices that causes a squeeze on real incomes, so preventing a rebound in consumer spending; a further large increase in the household saving ratio, also stopping consumer spending rebounding; an aggressive tightening of fiscal policy at a time when the private sector is still adjusting its saving/borrowing and which cannot be offset by monetary policy because the Bank of England's QE program is either ineffective or has reached the limit of its potential.

[Source: Xinhua, London, 22Feb10]

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