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A leading City think tank today predicted that the UK will drop out of the world's top 10 economies by 2015.
The Centre for Economics and Business Research said Britain (CEBR), currently the seventh-largest economy in the world, will be overtaken by Brazil, Russia, India and Canada by the middle of the next decade. It said even Australia could pass Britain by 2020.
The grim warning came as Chancellor Alistair Darling put the finishing touches to the Pre-Budget Report (PBR) to be published on Wednesday.
Business leaders and economists urged the Chancellor not to raise taxes and cut spending too soon for fear of snuffing out the recovery and driving the UK back into recession.
The UK was the world's fourth-largest economy in 2005 but was overtaken by China in 2006, France in 2008 and Italy this year.
Douglas McWilliams, chief executive of the CEBR, said: “In a decade, the UK could have dropped from being number four in the world to being outside the top 10.”
The forecast will not make pleasant reading for the Chancellor ahead of the PBR. Darling will admit that borrowing this year will hit a record £180 billion, or more than 12% of gross domestic product, as tax receipts evaporate and spending soars.
He will also repeat Labour's pledge to halve the deficit between 2010-11 and 2013-14 through higher taxes and spending cuts. Among the tax increases being considered are a supertax on bankers' bonuses and a 60% to 70% rate of income tax on those earning over £500,000.
Darling will also outline some spending cuts, although he will resist publishing the full details until after the general election.
Richard Lambert, director general of the CBI, said the biggest concern of all was when the squeeze should get underway.
He said: “Start too soon and there would be a risk of snuffing out a still-fragile economic recovery. Leave it too late and the UK's borrowing costs would start to escalate, building even bigger trouble for the future.”
Writing in The Times, Lambert said tightening should start in 2011-12 and aim to get the budget back in balance by 2015-16.
“History shows that a fiscal correction geared to spending cuts rather than to tax increases is more likely to deliver debt reduction and support growth,” he said.
Professor David Blanchflower, a former member of the monetary policy committee at the Bank of England, also urged the Chancellor “to resist any temptation to start cutting public spending in 2010-11”.
In a letter to the Financial Times, Blanchflower and 11 other professors wrote: “Taking risks at this point while recovery is delicate would risk a return to recession.
“What progress has been made towards recovery in the UK and abroad has been, in some considerable part, due to decisions by governments to increase spending as a stimulus, to actively support employment and to accept higher deficits as an inevitable outcome of these measures.
“To reverse this policy just when it is having an effect would be mistaken.
“Reducing the deficit now through spending cuts would undermine the recovery and ultimately damage the public finances further.”
Reader views (26)
Mr. Stephen Thomson
It should not be of any surprise if even Bangladesh economy overtakes UK econonmy. UK has been nothing but a nation of tall-talking people.
- Truthlover, London UK, 25/12/2009 18:34
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A lot of people are pinning this country's hopes of recovery on electing a conservative country, but the problem still remains of the national debt whoever is in power. In a years time if the tory's win we will all be coming out with the same grumbles as today only I think there will be more out of work then now as the cuts start to bite.
- Dave, Tax haven to be Isle of Wight, 09/12/2009 17:56
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It raises the question of why the UK continues to have aid programmes to India, China, Brazil and Russia?
- Steve Goodwin, Leeds, UK, 09/12/2009 17:23
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Sorry but this is the natural result of having a Labour government. People forget what Labour did to the UK under Callaghan.
- Gordon Hickley, Buckhurst Hill, Essex, 08/12/2009 11:26
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Judging by the comments I just read, it sounds like the general mood is, well, bad. We need to keep our heads up. Labour has created this mess but in less than 5 months now we can be heard at the polls. Vote for whoever else you want but just get this lot out of there. The longer they are in power the longer our standing in the world will continue to drop.
- John, Hammersmith, 08/12/2009 08:52
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Sure governments are to blame, but what about the people in the country. I mean in this country it is cool and stupid. And if you are smart, you are called a nerd or a geek etc... We need to respect smart people!
- Anonymous, London, 08/12/2009 02:26
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Only 2 days ago a contract was signed which is worth 40 billion pounds to the Australian economy to ship liquid natural gas to Japan from Western Australia. Only 8 weeks before that, the massive Gorgon resource project was approved by the Federal Government - worth around 50 billion pounds. And those projects are just the tip of the iceberg. I would say Oz will overtake the UK before 2020 if this level of investment continues. Remember the old saying, "if you can't beat them join them" - British firms should invest even more in Oz if they want to keep up.
- Not Suprised, Hobart, Australia, 07/12/2009 23:18
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Undoubtedly Labour has again ruined the UK as it always does through its obsession with big government interference and welfare dependency rather than individual responsibility. Witness the havoc and confusion they are now bringing to our financial services industry which will become much worst if they let the EU have a hand in future regulation. All the new developing economies such as India and Brazil need banks and clever financing to grow and the UK through the City was best placed in the world to provide this at great profit to the UK economy and our GDP growth. Yes we need to stay in the manufacturing game but not making (most) things that will again in time cease to be made by these new economies (to their loss) as they become cheaper to get from even newer economies yet to come such as in Africa. Educational services are another excellence in the UK contributing strongly to our GDP but sadly Labour has once again performed miserably here through its obsession with wasting vast amounts of money on bricks and mortar rather than massively funding actual futuristic Science and technology and our ability to sell educational expertise worldwide. If they would have done this we would be selling (financing) to all the countries now in Copenhagen the really new and innovative big stuff to solve climate change. This would really boost our GDP back to the top table without trying again to make cheap junk like cars, toys, white goods etc.
- Ron,, Bedfordshire, 07/12/2009 22:20
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There is no getting away from it. Labour has succeeded in ruining this country.
- Dave Davies, Basingstoke, Hants, 07/12/2009 20:16
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Don't worry next year we have elections and 'probably' a conserative landslide; if Falklands Oil reserves look anything like what the experts think, what do you think will happen. Just another repeat of 1979. This time the 'pagaille' will not be with Argentina but with France, sorry Sarco,and, as history has shown, the outcome will be... as it has always been. Rule Britannia
- Nigel Rush, Paris France, 07/12/2009 20:05
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Things will be better once we are rid of this lamebrain bunch. Can we survive until June though ?
- Michael, London, UK, 07/12/2009 18:22
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You have my vote, Tom of Bedfordshire, I just hope the of the country stop this who's to blame game, Labour - Tories, Europe, and realizes that "our greed is to blame" UKIP BNP even if they win this will change noting. Europe is here to stay, and if we are not careful we will end up begging them for help, because America is not interested in Britain, (never was, only at war time), the Europeans ask to many questions, so the Americans have started to look elsewhere China and they own the Chinese to much money now, and they are also scared that the Russia and China will cut a better deal without them and then want their money back, and they will not want dollars.
- Fred, London, 07/12/2009 17:49
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I've heard it said that a country without a good manufacturing base is a country without an economy. The UK has lost the plot in so many ways.
- Brian, Bristol, 07/12/2009 17:23
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Peter Bench, London: Spot on!
Back when we ruled vast areas of the world, visitors were shocked by the widespread poverty in Britain. The question is whether we can correctly adjust our economic activity to what the world wants to by in each generation. There was no way we could remain as the world's No 1 shipbuilder, history simply gave us a flying start. Similarly, in 10 or so years China will be writing its own insurance, and by then - if we have any sense - we will be on to the next thing. God help us if we find ourselves subsidising insurance companiest to stay in the game the way we tried to prop up the shipyards.
The prosperity of other countries does not imply our poverty, quite the reverse: as a nation that has lived by global trade (some of it very seedy) for four hundred years, long before we industrialised, we can earn our way in the world.
- Mdj E10, london uk, 07/12/2009 17:12
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As Napolian said, Britain is a nation of shop keepers. A better word would be shopaholics on free credit with no manufacturing, only banking and oil and banking has collapsed and will disappear to other parts of Europe if a supertax is impossed. So that just leaves oil and that will run out one day. The BRIC countries will dominate the world within the next 10 years(Brazil, Russia, India and China)and the PIGS will also be at the bottom of the pile with the UK(Portugal, Italy, Greece and Spain). You can't compete with China and India.
- Frank, Copenhagen, Denmark, 07/12/2009 17:06
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This contradicts other reports recently that place us 7th in 2020. I think this is inaccurate and UK will be a lot stronger placed than this.
Calm down everyone we'll always be a powerhouse.
- Stephen Thomson, London, 07/12/2009 17:05
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Any apologist for these findings should hang his/her head in shame. The truth has been there to see since the 1970's, and both shades of government are to blame. You cannot maintain an economy when you create things that no-one wants, you depend on service industries and financial services that are uncontrolled and uncontrollable, and you try to compensate by pouring money in to benefits to keep the sub-culture quiet. Copenhagen will waffle on about sustainability. Sustainability means a lot more than that. It starts at how we see ourselves, how we govern ourselves, how we elect that government.
This nation is well and truly screwed. There is no way back short of enormous pain. The fact that our European neighbours deride us for our profligacy may pour salt in the wound, but they were right, and we were wrong. Even Australia kept its house in order by kicking ten bells out of its banks 15 years ago when they misbehaved. And it maintained sufficient manufacturing capability to assure a balanced portfolio. So, house prices in Perth are 60% higher than they were 5 years ago, not bombing out and causing the pain and hardship we have.
What is different? All these countries have real governance, and real politicians that deliver it. Not short term also-rans who play to a moronic gallery.
It will not change in 2010, whomever is elected. Not unless one of them is prepared to acknowledge the pain barrier that has to be crossed. And we will still fall out of the top 10.
- Tom, Bedfordshire, 07/12/2009 16:25
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#Robin
Oh, really. And what was the Conservative excuse for privatising British Rail, London Transport, Water Boards, British Gas, Electricity Boards, British Steel, etc, etc, etc. As for six months before....... don't count your chickens, sunshine!
- Val Daniels, Mijas Costa, Spain, 07/12/2009 16:20
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I just would like to congratulate labour party of excellent job. Over 12 years in power and they managed to ruin the economy of our country. Took so much debt that children of our children will still be repaying it, they only guaranteed us enormous taxes for next 10 years and brought on us the worst crisis in history. Clever guys 
In the old days they would have their head chopped off!
- Kris, London, 07/12/2009 16:01
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The problenm with this article is that it is confusing nominal GDP with GDP at Purchasing Power Parity. The latter, which is actually far more reliable and nowadays more widely used, does not have the UK below France or Italy since most of the apparnet drop in GDP is down to the Sterling exchange rate weakening versus the Euro. When our economy picks up so will the pound and we will return to being ahead of France and Italy. As for Australia overtaking us this is on a PPP basis as there is no way it could happen on a nominal basis bearing in mind the difference in populations. Apples and pears I say.
- Mark, London, 07/12/2009 15:00
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Is that 5 years time or quarter past eight today?
- East, London, 07/12/2009 13:52
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'The grim warning': there is no evidence for it to be 'grim'. Countries that develop with populations 3 -22 times the size of the UK are bound to be bigger and we will all benefit from that. This will be true for France, Germany, Canada and other G8 countries except the US. Brazil China et al are just taking a place at the world table. Our question should be whether we can grow our own economy to sustain a standard of living rather than what slice of an expanding world cake we are taking.
- Peter Bench, London, 07/12/2009 13:33
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Robin Brittain is partly right but the rot started a long time before this Govt, but it is now reaching its logical conclusion. We have as a nation neglected manufacturing for many, many years. If you look at countries such as Germany and France they have active industrial policies that ensure that the skills and capital that industry need are in place. We just have an empty 'the market will decide' philosophy and a ridiculous belief that all we need is services.
We have to create the conditions to let winners thrive. Until we sort our basic approach out we aren't going anywhere.
- Cronk, London, 07/12/2009 12:58
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this is a product of ten years of social engineering to make everyone more equal and overstreched regardless of whether they can afford it and throwing years of bumper tax receipts into and ever burgeoning public admin sector while doing their best to take the will to live out of the private sector and new business.
The reason we are last out of this mess is we were most geared into it and the reason we will have the biggest problem is that grass routes new business has been taxed and obstructed for years in favour of having a third of the country dependent on the state for wages or benefit
The only industry with any power to help left is financial servces whioch is now the last remaining football to kick in the politics of envy so that escape route too will surely be knackered. I dont think the question is whether we should be out of the top ten given what Brown and his cronies have done to the country, the question is whetehr there is ever any way back?
- Paul ., Central London, 07/12/2009 12:48
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The way we are going we will finnish bottom of the world
- Richard Edmunds, Rayleigh UK, 07/12/2009 12:04
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This report verifies what anyone in business has known for years a once great industrial nation reduced to a country dependent on a flawed financial services sector and the rest of us acting like glorified shopkeepers. Without manufacturing no real wealth will be created and I noticed the other day that most our soap is now made abroad. The government has allowed this to happen and has made no attempt to keep our manufacturing industry allowing it to be sold off to the highest bidders with no concern for the economy. Alistair Darling should hang his head in shame when he reads this report as he and Brown have presided over the demise of a great nation in pursuit of their socialist fantasies. The governments only solution is to now sell off our national assets to help to compensate for the absolute mess they have created. Thank goodness we only have 6 months before we can get rid of them.
- Robin Brittain, Wolverhampton UK, 07/12/2009 10:25
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