Long haul ahead for Britain’s economy

‘UK’S outlook deteriorating’

LONDON, March 3, (RTRS): When the financial crisis began to spread five years ago, British coffee machinemaker Fracino raced to get ahead of it.

From the firm’s base in Birmingham, it carved out new markets in the Middle East, Asia and even Italy for its cappuccino and espresso machines which it proudly stamps with the British flag.

Last year Fracino generated 25 percent of its turnover abroad, up from just 2 percent before the crisis.

That is the kind of transformation the Conservative-led government promised for the broader UK economy as it took office in 2010, after the near collapse of the country’s huge banking sector and the plunge in housing prices.

But in the last few months, things have taken a worrying turn at Fracino. Clients at home and abroad have started to demand its cheaper machines, shunning the more expensive models and slowing the company’s revenue growth.

“They are just buying the machines that will do the job,” said managing director Adrian Maxwell.

“Until something happens for people to take their foot off the brake and feel a little bit more relaxed about spending again, it’s long going to be a long, hard haul.”

Nearly three years after Britain’s Conservative-led government vowed to restore the country to financial health with a round of deep spending cuts, the economy looks stuck in a rut and could already be in its third recession since 2008.

Public debt is set to carry on rising for another three years, a blow to the ruling coalition facing parliamentary elections in 2015 and which has made austerity the centrepiece of its economic policy.

The creation of more than 1 million jobs in the last two years has surprised economists. But paltry wage growth for most wage-earners has been the price of higher employment.

And the ambitious-sounding plans of 2010 to rebalance the economy with a focus on exports as a new driver of growth have so far come to little, hampered by the economic crisis that has hammered Britain’s main trading partners in Europe.

Even with a 20 percent slide in the value of the British pound since the onset of the financial crisis in 2007, Britain’s share of world exports has fallen by about 6 percent since then, according to data from the Organization for Economic Cooperation and Development.

“What is really striking about the UK is that it has had a quite important depreciation of the pound and still it hasn’t had a big increase in exports,” said Christophe Andre, an economist with the OECD.

Only Italy had worse overall growth among the industrialised Group of Seven nations in the same period, he said.

The Feb 22 downgrade of Britain’s triple-A rating underscored how long the