The biggest blow to London, the center of Europe’s credit industry, was a drop in the worldwide issuance of bonds and securities. The amount fell 77 percent from more than a trillion US dollars to 247 billion U.S. dollars in the third quarter.

The reduction reflected the near-total closure of London’s capital markets as bonds issued in euros dropped by 94 percent from 466 billion US dollars to 28 billion US dollars over the quarter.

A lack of financial investment represents a greater threat to Britain than unemployment, weakening demand for consumer goods and even falling house prices, economist Douglas McWilliams told Xinhua.

"Business investment is a huge part of the economy because it has a good multiplying effect on so many other areas. If it is not there, then it has the opposite effect," said McWilliams, chief executive of the Center for Economics and Business Research.

Effects of financial woes

Following the bankruptcies of some American investment banks and troubles within some British banks, Prime Minister Gordon Brown promptly unveiled an ambitious rescue package in October to mitigate the impact of the credit crunch on the UK.

The Bank of England also cut rates by 1 percent as expected on December 4 to a record low 2 percent. Rates may fall closer to zero percent by later next year.

However, the impact of the government's efforts has been greatly undermined by those financial institutions that have largely failed to respond. Some, already smarting from record losses, remain unwilling to lend to each other, other businesses or to pass on interest rate cuts to borrowers.

The IMF expects British banks to lose more than 20 billion pounds, compared with Japan's 5 billion pounds and China's 1.5 billion pounds.

"Businesses want to conserve their cash. They are very uncertain about how things are going to develop in the UK over the next 12 months," McWilliams said.

The woes of the financial sector have contributed to the worsening of unemployment and falling house prices in Britain.

Unemployment remains a growing problem in Britain and the number of jobless is approaching the 2 million mark. About 25,000 workers lost their jobs during one week in November.

Financial services were among the worst hit, with London inevitably suffering most. Economists forecast that from the peak of 353,000 in 2007 roughly 62,000 financial services jobs in London will be lost by the end of 2009, putting the industry back where it was in 1998, three years before Enron and 9/11.

The National Institution of Social and Economic Research (NISER) predicts the British economy will fall by 1.5 percent in 2009 while unemployment could hit a high of 2.5 million by 2010.

The British Retail Consortium said that trade in shops and stores had fallen in consecutive months in October and November for the first time since its survey began 14 years ago. Total sales were 0.4 percent lower in November than a year earlier after a 0.1 percent annual decline in October.

"If that (decline in financial investment) continues into next year it will be very bad news," McWilliams said. "The fall in investment has the potential to be much bigger than the drop in consumer spending."

(Xinhua News Agency December 12, 2008)