Published November 6, 2008
FLASHPOINT: UNITED KINGDOM
UK fights back - but has it left it too late?
Trade with S'pore could suffer as sharp recession looms despite rate cuts
By NEIL BEHRMANN IN LONDON

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THE UK Treasury and Bank of England are desperately trying to counter a deepening downturn in the British economy.

Outlook dims: Critics contend that the central bank has been far too slow in slashing rates and that they should fall to 2% in 2009 to counter a sharp decline in spending
As the UK threatens to slide into its worst recession since the early eighties, Singapore will not remain untouched. The UK imports more from Singapore than from any other South-East Asian country. In 2007 its imports amounted to more than £4.1 billion (S$9.7 billion), according to UK trade data. The UK is also Singapore's second largest trading partner from Europe, after Germany - apart from being one of its biggest investors.
The cumulative stock of UK investment in Singapore amounted to £17 billion in 2005. The compliment is repaid as around two-thirds of all Singaporean investment into the EU comes to the UK. Then, there is the small matter of more than 700 UK companies being represented in Singapore.
The downturn has already started to hurt. According to Singapore's latest statistics, total trade with the UK fell by 18 per cent to S$12.32 billion in the first nine months of 2008 from S$14.95 billion in the same period in 2007. That follows growth of 6 per cent to S$19.49 billion in the whole of 2007 from S$18.36 billion in 2006.
The UK economy shrank for the first time in 16 years between July and September, confirming that the UK has begun its recession.
Starting today, BT will run a series of stories on how some other countries - especially Singapore's major trade and business partners - are coping with the financial crisis

Output fell by 0.5 per cent, according to the Office for National Statistics, a bigger-than-expected drop following zero growth in the second quarter. The unemployment rate has surged to 5.7 per cent, the fastest rise in 17 years. The news knocked UK shares and weakened the pound.
Eclectic reflationary economic policies comprising both monetary and Keynesian fiscal measures have thus become vitally important. The Bank of England has already begun to slash interest rates and a further 0.5 per cent decline to 4 per cent is expected this week.
The bank has purchased toxic debt from weak banks to ease the money market to encourage banks to lend. The government has also bailed out several leading banks by partially nationalising them.
Bank of England governor Mervyn King has warned about impending recession. The combination of lower interest rates and fears about the economy have caused sterling to tumble by 25 per cent against the US and Singapore dollars and slide against other Asian, European and other currencies.
This devaluation from exceedingly overvalued levels, will help UK exporters and will hopefully boost depressed parts of the economy.
The slump in imported energy, food, raw materials and shipping rates are expected to counter higher import costs and inflation that normally result from devaluation. Indeed inflation is expected to decline from August peak annual level of around 5 per cent to around 2 per cent or lower in 2009.
Chancellor of the Exchequer Alistair Darling describes himself as a Keynesian. He says that the government intends pursuing the policies of John Maynard Keynes who in the deflationary Great Depression in the 1930s advised governments to increase public spending. The aim is to create jobs, which in turn generates consumer spending thus improving the profitability of businesses.
The big question is whether the policies will work. Critics of the government and Bank of England say that they were in denial for far too long. The Bank of England feared inflation, which was mainly caused by commodity speculation, a bubble that was bound to burst.
Critics contend that the bank has been far too slow in slashing rates and that they should fall to 2 per cent in 2009 to counter the deflationary consequences of a housing price crash and a sharp decline in consumer and business spending.
David Blanchflower, an external member of the Bank of England monetary policy committee, went against the majority and voted for an interest rate cut on every occasion since October 2007. He expects the numbers of jobless to reach two million by Christmas.
'The UK is especially exposed to the financial turmoil because of our dependency on the financial sector, and because the run-up in house prices and debt levels was even greater here than in the United States,' he says. 'Interest rates need to come down significantly - and quickly.'
Recent events in financial markets will likely reduce lending further to both households and firms in the near term, he says. If rates are not cut aggressively the UK faces the prospect of a relatively deep and long-lasting recession, he fears.
Critics of the government, especially the Conservative opposition complain that when he was Chancellor, Premier Gordon Brown went on a borrowing and spending spree. Mr Brown and his successor as chancellor, Mr Darling have already overborrowed, they contend.
In the March budget Mr Darling said that public borrowing would amount to £43 billion in the 2008-09 fiscal year. But Ernst & Young ITEM Club think tank forecasts the deficit will surge to £60 billion this year and £92 billion in 2009-10.
The debt-to-national income ratio is likely to surge through 50 per cent in the near future.
Critics contend that a far better fiscal route is to follow US policies and cut taxes. This will put immediate money in people's pockets. Heavy borrowing will lead to big tax rises in years to come they say.