NEW data recently released suggest that the economic outlook for the UK is darkening as the impact of the global economic slowdown, particularly in the US, which has been on an economic upturn for the last few years, is making itself felt in the UK also. Till recently enjoying a spate of prosperity, the UK is witnessing a fall in the employment figures. Analysts have warned that the Bank of England will be forced to cut interest rates to their lowest level since the early 1960s, in an attempt to ward off the impact of the global slowdown.

While the Bank may have reasonable control over the growth rate of GDP as a whole, through its control over interest rates, it is its only weapon. The pattern of GDP growth is beyond its control, and it is powerless to do much about the global manufacturing and technology collapse. Further, the experience of UK manufacturers has been mirrored in the US, Japan, Germany and France.

In the UK, manufacturing output has fallen for two consecutive quarters, fulfilling the so-called "technical" definition of recession in manufacturing. Analysts believe there is more pain in store for exporters as the world downturn gathers pace. Small- and medium-sized manufacturers are being equally hit by the global slowdown. Output of the small- and medium-sized manufacturers has fallen in the four months to July, at its sharpest rate since October. Investment plans for plants and machinery have weakened and employment continued to fall at a quicker rate than predicted in the CBI’s April survey. It is not surprising that the CBI study shows export optimism among small firms falling to its lowest level since October 1998.

Paradoxically and simultaneously, the manufacturing downturn has been accompanied by a rapid house price inflation, the latest nationwide house price index showing house prices up to 10.9 per cent over the past year, creating a two-direction economy. One obvious reason for the rise in house prices has been the reduction in borrowing costs in recent years. The significantly lower debt service costs, combined with a very competitive mortgage market, had led to a significant increase in the "buying power" of the typical would-be house purchaser.

The global slowdown, however, is no longer just a problem for manufacturing but has spread to the services sector which till now has been keeping the economy afloat, with service sector firms accounting for nearly two-thirds of economic output, according to a recent business survey.

The nine-year decline in unemployment, which had taken the jobless figures to a 25-year low, could, according to another survey published last week, be ending. Recruitment advertising is sliding at its fastest pace since the last recession, according to figures from the Recruitment and Employment Confederation --- a sign that unemployment could be on its way up. Its advertising index has fallen by nearly 20 per cent over the past year, the fastest decline since September 1991. The number of job advertisements is considered to be a leading indicator of the state of labour market. In the past, similar slumps in recruitment have quickly been followed by rising unemployment.

A rise in unemployment, it is reckoned, could also threaten the property boom currently being fuelled by lower mortgage rates, following the Bank’s cut in interest rates. Already house sales are dropping --- the number of houses sold during the past 12 months has declined from 270,579 in the second quarter of 2000 to 175,244 in the first quarter of this year. This decline in sales is said to affect every section of the housing market and every area of England and Wales. Combined with growing economic depression, job losses and declining corporate profitability, house prices may also be heading in the same uni-direction.