• UK living standards set to slump• 43% of small businesses expect to cut jobs in new year
Britain's standards will fall to the lowest level of any major economy in 2009 as recession and the plunging pound take their toll, new research by consultancy Oxford Economics reveals.
As recently as 2007, Britain was at the top of the heap, with GDP per capita - measured at market exchange rates - exceeding that of America for the first time since the Victorian era. Consumers rode a decade-long wave of prosperity, snapping up holiday homes in the Dordogne and bargains at Bloomingdale's store in New York.
But Oxford Economics predicts that in 2009, with sterling expected to weaken further, and the credit crunch rippling out from the City into the real economy, the UK will slip right to the bottom of the league, with GDP per capita of $35,243 (£23,913), compared with $46,373 in the US, and $41,531 in Germany, and beaten too by Italy, Japan and France.
"The UK was at the centre of the global financial boom and this led to a dramatic improvement in its apparent living standards relative to its peers, but the subsequent bust in financial markets has taken a very heavy toll on the UK," said Oxford's director, Adrian Cooper.
Consumers would feel most exposed to the relative fall in their living standards when they travelled abroad, he said, adding "Britons will no longer be among the richest people on the beach".
His gloomy prognosis comes amid mounting evidence that the credit crunch is taking a heavy toll on jobs and industries far beyond the Square Mile. Almost half of small firms are drawing up plans to cut staff in the new year, according to an exclusive survey for the Observer carried out by mobile phone company Orange.
Of more than 300 small business owners and managers polled, 43% said they were expected to lay off workers in the new year, while a third warned that they would 'struggle to cope' with the downturn in 2009.
The impact of the financial crisis on the car industry in the UK is also underlined today by figures released to the Observer by the Finance and Leasing Association, which estimates that, in November, the number of loans issued by the finance arms of car manufacturers or dealership slumped by a quarter compared with last year. The number of loans in October fell by just over a fifth.
As recently as the third quarter of this year, the level of credit extended by car companies and dealerships to consumers had hit a four-year high due to the drying up of availability of other funds traditionally used by consumers to purchase a car - bank loans and savings. The collapse in forecourt finance deals has exacerbated the slump in new car sales. Analysts said the availability of credit to buy cars - which the car industry hopes a government rescue package will address - would remain scarce next year.
Richard Lambert, director general of business body the CBI, warned that UK plc must wait until 2010 to see the green shoots of recovery.
'There is no doubt that 2009 is going to be a very tough year for the economy, and for society as a whole,' he said. 'But there are reasons to hope that by 2010 economic activity is more likely to be expanding than shrinking...'
His sombre assessment reflects a growing consensus that Chancellor Alistair Darling's hopes that his £20bn economic rescue package would kick-start recovery by the middle of next year now look wildly optimistic.
After official figures last Thursday showed the economy contracting by a worse-than-expected 0.6% in the third quarter, analysts have downgraded their forecasts, and postponed the start-date for recovery for two full years.
Published in The Observer Sunday 28 December 2008,Heather Stewart and Tim Webb
