Business

UK economy: The story of the downturn

  • 25 April 2013
  • From the section Business
Image caption More than five years after the start of the global financial crisis - which first touched the UK when Northern Rock collapsed in 2007 - the economy is still weak. What has happened during that time to prevent a recovery from this long economic downturn?
Image caption 2007: The run on Northern Rock - the first on a British bank in more than a century - started in September as customers flocked to withdraw their money. The bank had a funding crisis because the credit crunch meant it could not secure the short-term funds it needed.
Image caption 2008: The US's largest investment bank, Lehman Brothers, collapsed, sparking an unprecedented crisis in the global financial system. Stock markets tumbled across the world as the scale of the problems facing all banks became clear. In the UK, RBS, Lloyds and HBOS had to be rescued with taxpayers' money.
Image caption 2009: In his April Budget, Chancellor Alistair Darling forecast the biggest deficit in UK financial history - £175bn - the difference between the government's annual income and its outgoings. The IFS warned of "two parliaments of pain" following "breathtaking" damage to the economy from the financial crisis.
Image caption 2010: The crisis in the eurozone, the UK's biggest trading partner, deepened as Greece and Ireland received bailouts. After a spell of growth in the UK, GDP declined in the final quarter of the year. This was blamed on heavy snow in the week before Christmas. Without the bad weather, growth would have been flat.
Image caption 2011: There was growth in the first three quarters, but the economy contracted again at the end of the year. Unemployment peaked at 2.6 million, the highest since 1996. The squeeze on household spending intensified as inflation topped 5%. High Street chains such as Barratts, Habitat and TJ Hughes collapsed.
Image caption 2012: The Bank of England predicted a slow and uncertain path to growth, zig-zagging between small rises and falls. A one-off boost from sales of Olympic Games tickets broke that pattern temporarily. The government announced big welfare changes and said its austerity programme would last longer than thought.
Image caption 2013: The year began with a blow for Chancellor George Osborne when the UK lost its AAA credit rating. Moody's warned growth would be sluggish for years, making paying off the deficit harder. The economy grew 0.3% in the first quarter, avoiding a triple-dip recession. It has been broadly flat now for 18 months.