Only a year ago foreigners were ready to write off Britain. American financial guru Jim Rogers, cofounderwith George Soros of the Quantum Fund, advised the world not to put any more money in Britain. Sterling was “finished.” The oilfields of the North Sea were running dry, and the economic crisis had destroyed London’s reputation as a global financial center. What else did the country have to offer? For Rogers and his fellow doomsayers, Britain was a definite “sell.”
That was then. If Britain is truly finished, no one has told rating agency Moody’s, which last week confirmed Britain’s gold-plated triple “A” rating, praising a “vibrant and flexible economy.” Or the World Economic Forum, which earlier this month ranked Britain 12th in its global competitiveness report, up one place from 2009 and ahead of most of Europe. For that matter, the European Commission now reckons the British economy will grow 1.7 percent this year, faster than France and matching the euro-zone average. Indeed, in the third quarter of this year, Britain’s growth is likely to outpace any other G7 economy, according to the Organization for Economic Cooperation and Development.
Britain still boasts most of the qualities that generated 13 years of unbroken growth before the credit crisis. It’s a large—population 60 million—and open economy that offers foreign capital the kind of welcome not often found in mainland Europe. It’s still the favorite of American companies looking to invest in Europe, and of Indian businesses looking for a base on the continent. Small wonder: as a place to do business, Britain ranks fifth worldwide according to a World Bank index. A little humility helps too. “One thing you won’t find in Britain is European jingoism, the idea that Europe has all the answers,” says Simon Tilford, economist at the Centre for European Reform in London.
OK, there’s still plenty to worry outsiders. Moody’s talks of “serious challenges.” Britain is still living with the consequences of the grand spending splurge—private and public—that ended with the financial crisis. Next month, the government will detail spending cuts of a depth unprecedented since World War II—25 percent for most departments—intended to clear one of the largest budget deficits in the developed world. Already, nervous consumers are putting away their pocketbooks, worried by the impact on jobs and earnings. Retail sales dipped last month; in many areas property prices are again on the slide. The future of the City is uncertain, and exports are flagging. The latest trade figures showed the worst three-month trade gap on record—despite a 20 percent drop in sterling over the past three years.
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But Britain isn’t the fuddy-duddy, change-averse nation of the old caricatures. The WEF report praises its “sophisticated and innovative businesses that are highly adept at harnessing the latest technologies for productivity improvements.” Businesses are well protected by strong intellectual property rights and judicial independence, and well staffed by a highly educated workforce under flexible labor laws. For better or worse, it’s a lot easier to sack a worker in Britain than in Germany or France. Demography helps too. Unlike in France, Germany, and Spain, the working-age population of Britain is expected to grow rather than shrink over the next 40 years.
Besides, the British economy—the sixth largest in the world—was never quite so dependent on the City as it’s post-crunch critics allege. Financial services contributed hugely to the boom years but never accounted for much more than one tenth of the economy. As elsewhere in Europe, industry has been in steady decline, but Britain is the world’s sixth-strongest manufacturing power. Manufactured goods account for 13 percent of the national output, much the same as in France or the U.S. If Britain’s industrial muscle goeslargely unnoticed, it may be because its strengths are not in memorable consumer brands but rather in areas such as aerospace and pharmaceuticals.
Happily, too, Britain isn’t as vulnerable to the moodiness or misconceptions of the markets as many of its competitors. The structure of its debt means it can stay away from costly short-term borrowing. The average maturity of U.K. debt stock is 13 years—more than twice the figure for Germany or the U.S., and one more reason why Britain can afford to ignore the economic pundits. However grave its immediate problems, it isn’t finished yet.