![Keep Us Strong](../../../static/gfx/ja-cg.jpg)
![WikiLeaks logo](../../../static/gfx/WL_Hour_Glass_small.png)
Currently released so far... 3954 / 251,287
Articles
Browse latest releases
2010/12/01
2010/12/02
2010/12/03
2010/12/04
2010/12/05
2010/12/06
2010/12/07
2010/12/08
2010/12/09
2010/12/10
2010/12/11
2010/12/12
2010/12/13
2010/12/14
2010/12/15
2010/12/16
2010/12/17
2010/12/18
2010/12/19
2010/12/20
2010/12/21
2010/12/22
2010/12/23
2010/12/24
2010/12/25
2010/12/26
2010/12/27
2010/12/28
2010/12/29
2010/12/30
2011/01/01
2011/01/02
2011/01/04
2011/01/05
2011/01/07
2011/01/09
2011/01/10
2011/01/11
2011/01/12
2011/01/13
2011/01/14
2011/01/15
2011/01/16
2011/01/17
2011/01/18
2011/01/19
2011/01/20
2011/01/21
2011/01/22
2011/01/23
2011/01/24
2011/01/25
2011/01/26
2011/01/27
2011/01/28
2011/01/29
2011/01/30
2011/01/31
2011/02/01
2011/02/02
2011/02/03
2011/02/04
2011/02/05
2011/02/06
2011/02/07
2011/02/08
2011/02/09
2011/02/10
2011/02/11
Browse by creation date
Browse by origin
Embassy Athens
Embassy Asuncion
Embassy Astana
Embassy Asmara
Embassy Ashgabat
Embassy Ankara
Embassy Amman
Embassy Algiers
Embassy Addis Ababa
Embassy Accra
Embassy Abuja
Embassy Abu Dhabi
Embassy Abidjan
Consulate Amsterdam
American Institute Taiwan, Taipei
Embassy Bujumbura
Embassy Buenos Aires
Embassy Budapest
Embassy Bucharest
Embassy Brussels
Embassy Bridgetown
Embassy Bratislava
Embassy Brasilia
Embassy Bogota
Embassy Bishkek
Embassy Bern
Embassy Berlin
Embassy Belgrade
Embassy Beirut
Embassy Beijing
Embassy Banjul
Embassy Bangkok
Embassy Bandar Seri Begawan
Embassy Bamako
Embassy Baku
Embassy Baghdad
Consulate Barcelona
Embassy Copenhagen
Embassy Conakry
Embassy Colombo
Embassy Chisinau
Embassy Caracas
Embassy Canberra
Embassy Cairo
Consulate Curacao
Consulate Casablanca
Consulate Cape Town
Embassy Dushanbe
Embassy Dublin
Embassy Doha
Embassy Djibouti
Embassy Dhaka
Embassy Dar Es Salaam
Embassy Damascus
Embassy Dakar
Consulate Dubai
Embassy Kyiv
Embassy Kuwait
Embassy Kuala Lumpur
Embassy Kinshasa
Embassy Kigali
Embassy Khartoum
Embassy Kampala
Embassy Kabul
Embassy Luxembourg
Embassy Luanda
Embassy London
Embassy Lisbon
Embassy Lima
Embassy Lilongwe
Embassy La Paz
Consulate Lagos
Mission USNATO
Embassy Muscat
Embassy Moscow
Embassy Montevideo
Embassy Monrovia
Embassy Minsk
Embassy Mexico
Embassy Maputo
Embassy Manama
Embassy Managua
Embassy Malabo
Embassy Madrid
Consulate Munich
Consulate Montreal
Consulate Monterrey
Embassy Pristina
Embassy Pretoria
Embassy Prague
Embassy Port Au Prince
Embassy Phnom Penh
Embassy Paris
Embassy Paramaribo
Embassy Panama
Consulate Peshawar
REO Basrah
Embassy Rome
Embassy Riyadh
Embassy Riga
Embassy Reykjavik
Embassy Rangoon
Embassy Rabat
Consulate Rio De Janeiro
Consulate Recife
Secretary of State
Embassy Stockholm
Embassy Sofia
Embassy Skopje
Embassy Singapore
Embassy Seoul
Embassy Sarajevo
Embassy Santo Domingo
Embassy Santiago
Embassy Sanaa
Embassy San Salvador
Embassy San Jose
Consulate Strasbourg
Consulate Shenyang
Consulate Shanghai
Consulate Sao Paulo
Embassy Tunis
Embassy Tripoli
Embassy Tokyo
Embassy The Hague
Embassy Tel Aviv
Embassy Tehran
Embassy Tegucigalpa
Embassy Tbilisi
Embassy Tashkent
Embassy Tallinn
USUN New York
USEU Brussels
US Mission Geneva
US Interests Section Havana
US Delegation, Secretary
UNVIE
Embassy Ulaanbaatar
Browse by tag
AF
AM
AE
AG
AR
ASEC
AS
AU
AORC
AJ
AMGT
AGMT
AFIN
APER
ABUD
ATRN
AEMR
ACOA
AEC
AO
AX
AMED
ADCO
AODE
AFFAIRS
AC
AL
ASIG
ABLD
AA
AFU
ASUP
AROC
ATFN
CH
CE
CA
CASC
CU
CLINTON
CO
CI
CVIS
CDG
CIA
CACM
CDB
CS
CBW
CD
CV
CMGT
CJAN
CG
CF
CN
CAN
COUNTER
CIS
CM
CONDOLEEZZA
COE
CR
CY
CTM
COUNTRY
CLEARANCE
CPAS
CWC
CT
CKGR
CB
CACS
COM
CJUS
CARSON
COUNTERTERRORISM
EUN
EG
EAID
ENRG
ETTC
EFIN
ECON
ETRD
EPET
EINV
EMIN
ECIP
ECPS
EINDETRD
EAGR
EU
EN
EZ
ELAB
ER
ET
ES
EUC
EI
EAIR
EIND
EWWT
ELTN
EREL
ECIN
EFIS
EINT
EC
ENVR
ECA
EXTERNAL
EINVETC
ENIV
EINN
ENGR
EUR
ESA
ENERG
EK
ELECTIONS
ECUN
EINVEFIN
IR
IS
IZ
INRB
IAEA
IN
IT
ID
IO
IV
ICTY
IQ
ICAO
INTERPOL
IPR
IRAJ
INRA
INRO
IC
IIP
ITPHUM
IWC
ISRAELI
IRAQI
ICRC
IMO
IF
ILC
IEFIN
INTELSAT
IL
IA
IBRD
IMF
ITALY
ITALIAN
KCOR
KDEM
KNNP
KU
KWBG
KPAL
KN
KS
KZ
KAWK
KISL
KPAO
KCRM
KJUS
KSEC
KIPR
KGHG
KIFR
KTFN
KDRG
KV
KSUM
KWAC
KAWC
KDEMAF
KFIN
KGIC
KTIP
KOMC
KHLS
KSPR
KGCC
KPIN
KG
KBIO
KHIV
KSCA
KE
KFRD
KPKO
KNUC
KMDR
KPLS
KOLY
KUNR
KIRF
KIRC
KACT
KRAD
KCOM
KMCA
KHDP
KVPR
KDEV
KWMN
KTIA
KPRP
KCIP
KCFE
KOCI
KTDB
KMRS
KLIG
KBCT
KICC
KGIT
KSTC
KPAK
KNEI
KSEP
KPOA
KFLU
KNUP
KNNPMNUC
KO
KTER
KHUM
KRFD
KBTR
KDDG
KWWMN
KFLO
KSAF
KBTS
KPRV
KMPI
KNPP
KNAR
KWMM
KERG
KTBT
KCRS
KRVC
KR
KPWR
KMIG
MOPS
MZ
MO
MNUC
MASS
MARR
MY
MEPP
MCAP
MA
MR
ML
MX
MIL
MTCRE
MPOS
MOPPS
MTCR
MAPP
MU
MG
MASC
MCC
MK
MTRE
MP
MDC
MAR
MEPI
MRCRE
MI
MT
MQADHAFI
MD
MAPS
MUCN
PREL
PTER
PGOV
PO
PHUM
PINS
PARM
PK
PINR
PINT
PBTS
PROP
PE
PL
PREF
POGOV
PINL
POL
PBIO
PSOE
PHSA
PKFK
PGOF
PARMS
PA
PM
PMIL
PTERE
PF
PALESTINIAN
PY
PGGV
PNR
POV
PAK
PAO
PFOR
PHALANAGE
PARTY
PNAT
PROV
PEL
PGOVE
POLINT
POLITICS
PEPR
PSI
PU
POLITICAL
PARTIES
PECON
SNAR
SA
SY
SOCI
STEINBERG
SP
SENV
SCUL
SF
SO
SR
SG
SW
SU
SL
SMIG
SN
SHUM
SZ
SYR
ST
SANC
SC
SAN
SIPRS
SK
SH
SI
UNSC
UP
UK
USEU
UG
UNMIK
UV
UZ
UY
UN
US
UNGA
UNO
USUN
UE
UNESCO
UAE
UNEP
USTR
UNHCR
UNDP
UNHRC
USAID
UNCHS
UNAUS
Browse by classification
Community resources
courage is contagious
Viewing cable 08LONDON1921, SQUEEZED IN THE JAWS OF THE CREDIT CRUNCH -- UK ECONOMY
If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs
Understanding cables
Every cable message consists of three parts:
- The top box shows each cables unique reference number, when and by whom it originally was sent, and what its initial classification was.
- The middle box contains the header information that is associated with the cable. It includes information about the receiver(s) as well as a general subject.
- The bottom box presents the body of the cable. The opening can contain a more specific subject, references to other cables (browse by origin to find them) or additional comment. This is followed by the main contents of the cable: a summary, a collection of specific topics and a comment section.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol). Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #08LONDON1921.
Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
08LONDON1921 | 2008-07-23 13:01 | 2011-02-04 21:09 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy London |
VZCZCXRO4157
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHLO #1921/01 2051300
ZNR UUUUU ZZH
P 231300Z JUL 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 9267
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHBL/AMCONSUL BELFAST PRIORITY 1089
RUEHED/AMCONSUL EDINBURGH PRIORITY 0954
UNCLAS SECTION 01 OF 03 LONDON 001921
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD UK EINV
SUBJECT: SQUEEZED IN THE JAWS OF THE CREDIT CRUNCH -- UK ECONOMY
QUARTERLY UPDATE
LONDON 00001921 001.2 OF 003
¶1. (SBU) Summary: The British economy will slow dramatically in 2008 and 2009 after leading the G7 with GDP growth of three percent in 2007. Ernst and Young predict GDP growth to fall to only 1.5 percent in 2008, the OECD forecasts 1.8 percent, and Oxford Economics says 1.6 percent. Inflation is running above the Bank of England's target of two percent at 3.8 percent, and demands from unions for higher wages could push it even higher. The employment rate remains fairly stable although there are signs that it may weaken. Ernst and Young predicts the Bank of England will cut interest rates again in November, but any future cuts will depend on inflation. Public finances are in their worst state since 1993. The weakening economy is weighing heavily on PM Brown's reputation as an astute manager of the economy. HMG may be forced to modify fiscal rules he established as Chancellor of the Exchequer and the new Chancellor, Alistair Darling, may be made a scapegoat for economic woes in a fall cabinet re-shuffle. This is the first of quarterly reports on the British macroeconomic situation. End summary.
Gross Domestic Product ----------------------
¶2. (U) In its quarterly economic forecast, the Ernst and Young ITEM Club forecasts UK GDP growth to fall to one percent in 2009 as the economy 'flirts with recession'. The forecast says the UK economy is in danger of 'being crushed between the jaws of world credit and commodity markets, with little prospect of early relief'. Oxford Economics, a consultancy firm, is more optimistic. It forecasts UK growth at 1.6 percent in 2008 and 1.6 percent in 2009. It has revised down its previous estimates of 1.8 percent and 1.7 percent respectively.
¶3. (SBU) HM Treasury (HMT) expected the financial markets to recover more quickly when they announced their annual economic growth forecasts in their March 2008 budget report, according to Chris Kelly, Senior Economic Advisor at HMT. At that time, Darling predicted the UK's economy would grow between 1.75 and 2.25 percent in 2008 and recover in 2009. Since then, Darling as admitted that his forecast will be revised downward.
4.(U) GDP rose by 0.3 percent in the first quarter of 2008, and is 2.3 percent higher than Q107. Output of the production industries fell by 0.2 percent, compared with a rise of 0.2 percent in the previous quarter. While manufacturing output saw growth of 0.4 percent, it was more than offset by falls in energy extraction and supply. Growth in the services sector was 0.3 percent, down from 0.6 percent growth in the previous quarter. Household expenditure rose 1.1 percent, up from 0.4 percent in Q407. Government final consumption expenditure rose by 0.9 percent. Figures show real quarterly growth and are seasonally adjusted
------------------------------------- Q107 Q207 Q307 Q407 Q108 GDP 0.8 0.9 0.6 0.6 0.3 -------------------------------------
Inflation Above Targets -----------------------
¶5. (U) ITEM expects CPI to remain above the Bank of England's target range of 1-3 percent for the next 12 months. It predicts that inflation will average 3.5 percent in 2008, coming down to 3 percent in 2009 and 2 percent by 2010. It notes that this forecast assumes that wage and domestic cost inflation remain subdued. In the UK there is currently a significant push for higher wages to offset price increases. This pressure is particularly acute in the public sector where pay increases have been held below those in the private sector and below the cost of living for two years. Chancellor Darling has called for pay constraint but unions are threatening a season of industrial action if pay deals are not reopened. ITEM urged the government not to accept any excessive public sector pay demands which could put severe pressure on any attempts to dampen inflation and potentially destroy any hopes of a medium term recovery.
¶6. (U) During the first quarter of 2008, the largest upward pressure on inflation came from food, mainly meat, vegetables, and non-alcoholic beverages, and fuel, particularly heating oil. Despite growth in the CPI, however, the UK inflation rate is below the provisional figure of 4 percent for the European Union as a whole. The main factors affecting the CPI also affected the RPI. However, the Retail Price Index experienced a downward contribution from housing. This came mainly from mortgage interest payments as lenders passed on April's quarter point decrease in the bank rate to customers, in addition to house price depreciation.
LONDON 00001921 002.2 OF 003 (Annual inflation rates - 12 month percentage change)
----------------------------------------- Jan08 Feb08 Mar08 Apr08 May08 Jun08 CPI 2.2 2.5 2.5 3.0 3.3 3.8 RPI 4.1 4.1 3.8 4.0 4.3 4.6 -----------------------------------------
Employment Stable -----------------
¶7. (U) Overall employment and unemployment figures have remained fairly stable, despite volatility in the economy. The total number of people in work rose in the three months to May to an all time high of 29.59 million. However, the number of people in the UK claiming unemployment benefit saw the biggest jump in 16 years. The claimant count has risen by 45,000 since the end of January 2007, to 2.6 percent of the working age population. Job losses are most prominent in the building and financial sectors.
¶8. (U) Professor David Blanchflower, a member of the Bank of England's Monetary Policy Committee who has voted for interest rate cuts for the last nine months, has predicted that the UK is heading for a recession which could cost hundreds of thousands of jobs. He expects unemployment to rise from 5.2 percent to more than 7 percent. While ITEM is forecasting a rise in the overall numbers of unemployed, it remains hopeful that it will only be a modest jump, particularly in comparison with previous downturns. A major contributory factor to the limited nature of this increase is that poorer UK employment and economic prospects, combined with a weaker exchange rate, is causing a reversal in migration flows. However, it still anticipates that unemployment will rise from 1.6 million at the end of 2007 to the 2 million mark by 2010. Seasonally Adjusted (Percentage)
--------------------------------------------- -- Q107 Q207 Q307 Q407 Q108 Employment 74.3 74.4 74.4 74.7 74.9 Unemployment 5.5 5.4 5.4 5.2 5.2 --------------------------------------------- --
Interest Rate, Pulled Both Ways, Doesn't Move ---------------------------------------------
¶9. (U) The Bank of England's Monetary Policy Committee (MPC) has resisted calls to cut the interest rate as the economy continues to falter. With inflationary expectations rising in line with headline inflation figures, the MPC has felt unable to offer relief from a lower base rate. However, ITEM expects a slowdown in consumer spending to pave the way for a rate cut this winter, perhaps as early as November. Beyond that, interest rate decisions will likely be determined by the behavior of commodity prices. If crude oil prices follow the expectations of the futures market and peak at $150 a barrel this fall, before easing back, ITEM expects interest rates to fall back to 4 percent by the end of 2009. This will help to put a cushion under the level of demand in the economy and set the scene for recovery in 2010.
--------------------------------------------- -- Jan08 Feb08 Mar08 Apr08 May08 Jun08 Bank Rate 5.50 5.25 5.25 5.00 5.00 5.00 --------------------------------------------- --
Public Finances Breaking the Rules ----------------------------------
¶10. (U) HMG's current budget deficit in May, at GBP 9.1 billion, was the worst May figure since monthly records began in 1993, and the second worst figure on record. Tax receipts in the first two months of the fiscal year (which begins in April) were up only 3.6 percent year on year, worse than the 4.8 percent forecast by the Chancellor in his March Budget. The Chancellor has predicted public sector net borrowing to reach GBP 43 billion at the end of the financial year, but analysts believe he will exceed this target by a substantial margin.
¶11. (U) There has been media speculation, widely regarded as accurate, that Treasury officials have begun working privately on plans to rework the fiscal rule, established by Gordon Brown as LONDON 00001921 003.2 OF 003 Chancellor, that limits public sector debt to 40 percent of national income. Following the rule changes, it is likely that public sector debt could rise to 42-45 percent of GDP. At a Downing Street press briefing, the Prime Minister's spokesman noted that according to the IMF's latest estimates for 2008, the UK is in a stronger position than most countries. Net debt in the Euro area as a percentage of GDP is currently 55.9 percent and in the U.S. is 47.9 percent.
------------------------ ---------------------------------- Apr08 May08 Jun08 Current Budget (Billions) 0.6 (9.1) (7.6) (Deficit in brackets) Public Sector Net Lending 0.5 (11.0) (9.2) (Billions-Borrowing in brackets) Public Sector Net Debt 36.5 37.2 38.3 (Percentage of GDP) ----------------------- -----------------------------------
Chancellor to Pay the Price? ----------------------------
¶12. (SBU) Darling threatened to resign twice prior to publishing the 2008 HMT budget report, according to recent reports in the media. One influential MP told us that a shake-up of Brown's cabinet is very likely in the fall, confirming press reports. Darling could likely lose the Chancellorship in any government re-shuffle, given Brown's need to demonstrate a response to the growing public perception of economic malaise in the UK. Darling has also been the point person in multiple unpopular tax proposals that were later revised or scrapped, including the non-dom tax changes, car taxes, and most recently a tax on passive income for multinational firms. The constant reversals have battered Darling's and the government's reputations as responsible guardians of the British economy.