Is this a problem you find when you go shopping? Maybe that’s because the shop that sells it has closed. A report by the Local Data Company has revealed that one in eight shops stand empty on Britain’s high streets, after the recession saw vacancies shoot up by 24% in the second half of 2009. The number of empty town-centre shops climbed to 17,880 in the second half of 2009, equivalent to 12% of the 149,000 shops covered by the research.
Margate in Kent and Wolverhampton in the Midlands were two of the worst-hit areas, where vacant shops stood at 27% and 24% respectively. Take a stroll down a high street in almost any city or town in the UK and you are bound to see ‘Shop for let’. We’ve seen Woolworths and Borders close down and Threshers’ parent company collapse. But these stores have largely remained empty.
Empty houses have also been a problem as the number of repossessions increases. Statistics show an average of 126 people a day were thrown out of their homes in 2009. What is the explanation behind this?
An obvious answer is the recession. As shops felt the strain of low demand, some were simply unable to cope and they shut down as a result. At the same time, new firms were reluctant to take the risk and enter the market during an economic downturn – and who can blame them?
However, are there other reasons why Britain’s high streets are seeing more and more empty shops? The following articles look at the reshaping of our high streets and some of the explanations behind it.
Empty Shops
Shops ‘empty due to recession’ The Press Association (11/2/10)
UK recession has left one in eight shops empty Telegraph, Graham Ruddick (11/2/10)
Bradford second worse for empty shop premises Telegraph and Argus, Will Kilner (11/2/10)
25% of town shops now empty Express and Star (11/2/10)
British town centres in crisis, conference told Reuters, Sinead Cruise (10/2/10)
Empty shop numbers continue to rise in UK Property Week, Laura Chesters (10/2/10)
Empty shops caused by more than recession Startups (12/2/10)
Empty Homes
Buy-to-let: Landlords blow as tenants struggle to pay Telegraph (11/2/10)
Housing Minister says repossession is the ‘best thing’ for homeowners Telegraph, Myra Butterworth (11/2/10)
Home repossessions at highest since 1995 This is Money (11/2/10)
Questions
- What are the main factors behind the high number of empty shops? Use a demand and supply diagram to illustrate these factors.
- In the Startups Article, the BRC Director says: “High street shops are often battling big bills for business rates and rents, parking and access difficulties, as well as failure to manage and invest in the area.” Illustrate this on a diagram and explain how this effect has contributed to empty shops.
- To what extent is more internet shopping the main cause of the problem? Why is it cheaper to run a business via the internet than on a high street?
- Why have some cities and towns been more affected than others?
- Is there a link between empty shops and repossessions?
- What more could the government and local councils do to try to encourage businesses to set up on the high street?
Over the past week, Greece has been hogging the headlines when it comes to debt crisis. However, there is concern that there are a number of other countries ‘where credit defaults swaps are unusually high, suggesting there is risk in terms of default’. Greece’s deficit stands at 12.7% (£259bn), which is over 4 times higher than EU rules allow and its debt levels are expected to reach 120% of GDP this year if help is not given. Furthermore, if Greece’s debt problems are not tackled, there is a worry that other countries with big deficits, such as Portugal and Spain will become vulnerable. Public spending in Greece had been rising for some time but the tax revenue hadn’t increased to match this. As government spending rose and tax revenues fell, the growing debt was inevitable.
What is just as concerning is the cost of servicing this debt. This is costing Greece about 11.6% of GDP and the Greek government has estimated that it will need to borrow €53bn this year to cover budget shortfalls. Strikes by public-sector workers have also affected the country, as figures show that the unemployment rate has increased to 10.6%.
However, there are now reports that an agreement has been reached at the EU summit to rescue Greece and help it tackle its debt problems. Herman Van Rompuy, the European Union’s President, said that an agreement had been reached. The news was immediately welcomed by jittery markets, with the euro regaining some of its losses. Initially, it was thought that British taxpayers would be a part of any bailout package, but Alistair Darling, said there was no plan to use UK taxpayers’ money to support Greece. When asked about the comparison of the UK with Greece, Alistair Darling commented that:
“I don’t think you can compare the UK with Greece. We have different policies. We have a very good track record and, most importantly, the maturity of UK debt is much longer.”
The EU summit was officially meant to cover medium-term European economic strategy, but it was dominated by the Greek crisis. Germany and France are likely to stand together and pledge to come to Athens’s aid by guaranteeing Greek solvency, but only time will tell whether this will happen or will work.
EU leaders reach deal to rescue Greece from debt crisis, President Barroso says Telegraph, Bruno Waterfield (11/2/10)
Mervyn King on Greece, Britain’s deficit and a hung Parliament Telegraph (10/2/10)
FTSE rises amid Greece rescue hopes The Press Association (11/2/10)
Greece’s unemployment rate hits 10% BBC News (11/2/10)
Debt crisis: Experts see more skeletons tumbling News Center (11/2/10)
EU deal ‘agreed’ on Greece debt woes BBC News (11/2/10)
Greek bailout deal reached at EU summit Guardian, Ian Traynor and Graeme Wearden (11/2/10)
Greek bailout would hurt Eurozone – Germany’s Issing Reuters (29/1/10)
Greece must meet deficit target to get aid Reuters (11/2/10)
Could bailout be on the cards for Greece BBC News (10/2/10)
Germans must start buying to save Europe’s stragglers Financial Times, Martin Wolf (10/2/10)
Thinking the unthinkable BBC News Blogs, Stephanomics, Stephanie Flanders (11/2/10)
Angela Merkel dashes Greek hopes of rescue bid Guardian, Ian Traynor (11/2/10)
Greece faces devaluation, default or deflation. Next stop the IMF Guardian, Larry Elliott (11/2/10)
Germany demands austerity, not bailout, for spendthrift Athens Guardian, Ian Traynor (11/2/10)
See also the Guardian podcast in the news item, Debt and the euro
See too the news item from October 2008, The eurozone – our economic saviour?
Questions
- What is the cause of Greece’s debt problems?
- According to the European Central Bank chief economist Otmar Issing, a Greek bailout would weaken the euro and hurt the reputation and image of the eurozone. How can we explain this?
- What do we mean by servicing a debt?
- How could Greece’s debt problems cause problems for other countries with large debts, such as Ireland, Portugal and Spain?
- Which country is better off: the UK or Greece?
- Who will be the loser from a bailout?
- Are the EU rules about debt and deficit levels a good thing or are they too restrictive to be helpful?
- What are the arguments for and against the ECB increasing its target rate of inflation, say to 4%, as a means of stimulating recovery?
With the majority of developed countries now moving out of recession, many people will think the worst is over. But for some countries and some people, there may be worse to come. The single currency in the eurozone was introduced in 1999 and in December 2009, the eurozone saw its highest level of unemployment at 10%. There are now 23 million people unemployed across the 16 countries that make up the eurozone and many of those people reside in Spain, where unemployment has reached a 12-year high of 18.8% and is even expected to reach 20%.
Interest rates in the eurozone and in the UK have been maintained at 1% and 0.5% respectively, and inflation has seen a rise in both places. Whilst in the eurozone inflation remains well below the inflation target, in the UK there has been a rapid rise to 2.9% to December 2009 (see Too much of a push from costs but no pull from demand)
While Spain is suffering from mass unemployment, Greece is struggling with the burden of a huge budget deficit. The former European Central Bank Chief Economist, Otmar Issing, has said that any bailout of Greece would severely damage the Monetary Union and “The Greek disease will spread”. With concern that Greece will not be able to service its debt, there is speculation that the country will be forced out of the currency bloc. However, the chair of the single currency area’s finance ministers said that Greece will not leave the eurozone and does not believe that a state of bankruptcy exists.
So, what’s behind rising unemployment, rising inflation and rising budget deficits and how are they likely to affect the eurozone’s recovery?
Eurozone inflation rises to 0.9% BBC News (15/1/10)
Unemployment sector remains beat in Eurozone pressuring price levels FX Street (29/1/10)
greek bailout would hurt Eurozone – Germany’s Issing Reuters (29/1/10)
Eurozone unemployment rate hits 10% BBC News (29/1/10)
Greece will not go bust or leave Eurozone Reuters, Michele Sinner (27/1/10)
Eurozone unemployment hits 10% AFP (29/1/10)
New rise in German job loss total BBC News (28/1/10)
Spain unemployment nears 12 year high Interactive Investor (29/1/10)
Questions
- How do we define unemployment? What type of unemployment is being experienced in the eurozone?
- Why do you think unemployment levels have risen in the eurozone and in Spain in particular? Illustrate this on a diagram.
- What are the costs of unemployment for (a) the individual (b) governments and (c) society?
- What explanation can be given for rising levels of both unemployment and inflation?
- Inflation in the eurozone increased to 0.9%. What are the factors behind this? Illustrate the effects on a diagram.
- Greece’s forecast budget deficit for 2009 is 12.7% of GDP, but Greece has said it will reduce it to 8.7% of GDP. How does the Greek government intend to do this and what are the likely problems it will face?
- Why could bailing out Greece hurt the eurozone?
Most businesses have suffered over the past year or so. Profits and sales have fallen, as the UK (and global) economy suffered from a recession that’s seen UK interest rates at 0.5%, unemployment rising and public debt at unprecedented levels. Christmas trading always sees a boost in sales and that’s just what’s happened for many businesses. Shoppers have responded to the doom and gloom of the past year by spending and making up for a hard year. Phrases such as “I decided to treat myself” became common on the news as reporters travelled to shopping centres across the UK. However, shops such as M&S and Next have warned that attempts by the government to reduce the public deficit could derail the consumer recovery.
These positive stories, whilst true, are a useful tool to help boost consumer confidence and keep expectations positive for the coming months. However, there are warnings that these figures shouldn’t be taken out of context. The economy is still in trouble and public debt has reached almost 60% of GDP. With cuts in government spending and rises in taxation expected, how much confidence should be taken from these positive signs in the retail sector? Only time will tell.
Online powers Shop Direct sales Financial Times, Esther Bintliff (6/1/10)
Poundland, House of Fraser and Co-op see sales rise BBC News (11/1/10)
Links of London see buoyant festive sales Telegraph, James Hall (5/1/10)
John Lewis reports bumper Christmas trading Retail Week, Jennifer Creevy (5/1/10)
New Look expects to build on strong Christmas London Evening Standard (7/1/10)
Christmas trade booming in City Star News Group, Alex de Vos (7/1/10)
Record trading for Cash Generator Manchester Evening News (7/1/10)
Sainsbury’s hails ‘strong’ Christmas trading BBC News (7/1/10)
Cautious M&S reports strong Christmas trade Times Online, Marcus Leroux and Robert Lindsay (6/1/10)
Asda reports ‘solid’ Christmas trading Guardian (6/1/10)
Questions
- Why are expectations important for the future of the British economy? Are the expectations rational or adaptive or a combination of the two?
- Are high Christmas sales really a sign that the economy is recovering? Discuss both sides of the argument. Will high sales now have an adverse effect on future trade in the UK?
- How will expected cuts in government spending affect sales in the retail sector?
- Tax rises are a possibility. How will this affect consumers and sales in the coming year? Think about the circular flow of income.
- If interest rates are increased in the coming months, trace through the likely effects in the goods market.
No, I’m not talking about the UK suffering from snow and becoming a land of ice! Towards the end of 2008, Icelandic banks hit the headlines and for all the wrong reasons. Icelandic banks were key lenders to some of the key businesses and entrepreneurs in the UK and an online bank held the accounts of over 150,000 Brits. The Icelandic government tried to rescue their banking sector, but with little success and we saw it collapse, sending shockwaves through UK banks. The UK economy lost millions and this contributed to the worsening financial system within our shores.
Iceland’s President has been under serious pressure, from the UK and Dutch governments on one side and from the Icelandic people on the other. A quarter of voters in Iceland have signed a petition against plans to repay money lost by foreigners when an Icelandic online bank collapsed. When the Icesave scheme collapsed in 2008, British and Dutch savers lost approximately £3.4bn (€3.8bn). Although they were compensated by the British and Dutch governments, this still meant that the taxpayers in these countries were owed the money by Iceland.
Iceland’s Parliament approved the plans to reimburse the money, but the people are encouraging their President to veto the bill. They argue that repaying this money will cost the Icelandic taxpayers: the compensation is some 12,000 euros for each of Iceland’s residents. Campaigners say that the Icelandic people are being forced to pay for the mistakes of the banks. Whilst UK taxpayers lost out, the Icelandic people’s arguments have something of a déjà-vu about them: after all it wasn’t long ago that the UK people were asking why we should have to suffer from higher taxes and future cuts in government spending to bail out the banks, when it wasn’t our fault that they collapsed in the first place. The following articles consider this issue.
Icelandic bank with British savers’ money enters crisis talks Telegraph, Rowena Mason (4/10/08)
Town Hall’s £830m Iceland shortfall This is Money, Daniel Martin (6/1/10)
Iceland leader vetoes bank repayments bill BBC News (5/1/10)
iIceland blocks repayment of £2.3bn to Britain Times Online, Robert Lindsay (5/1/10)
Iceland petition against pay-out over Icesave collapse BBC News (2/1/10)
Iceland’s President under pressure over Icesave Telegraph, Angela Monaghan (3/1/10)
Peston’s Picks: We’re all Icelanders now BBC News (7/1/10)
Iceland President says country will pay UK government BBC News (7/1/10)
Questions
- For the Icelandic people, what are the arguments (a) for and (b) against repaying money owed to the UK and the Netherlands?
- For the British and Dutch people, what are the arguments (a) for and (b) against repayment?
- How will this repayment (or lack thereof) affect the recovery of the British economy?
- Will the repayment of this money adversely affect the Icelandic economy? Explain your answer. Think about tax cuts and the effect on consumer incomes.
- Why is this a key example of international policy interdependence?