Oil & Steel Causing Problems for the UK Economy

Oil & Steel Causing Problems for the UK Economy

27th January 2016

There was some pretty disturbing news for the construction industry last week as oil prices fell below $30 per barrel.  Oil producers around the world are beginning to turn off drilling rigs and shut down oil wells, the situation is so serious.  The fall in oil prices coupled with the crisis we’re seeing in the UK’s steel industry is a worrying development which is likely to have some quite far-reaching effects such as reducing the value of British pension funds, leading to higher contributions.  We’re still in a global recession with negative world trade growth and negative world credit growth.  This is likely to lead to job losses across many sectors, but the British steel industry is already suffering and it looks as if things are only going to get worse as far as steel production in the UK is concerned.

Last year a significant 5,000 jobs were lost in the British steel industry as a result of the ‘dumping’ of cheap foreign steel on the UK market.  Most of the cheap steel came from China and last week another 750 jobs were lost at the massive Port Talbot steel plant in Wales.  Suddenly, steel workers who thought they had a job for life found themselves facing an uncertain future as they joined the latest wave of redundancies here in the UK.  Furthermore, one of Sheffield’s last remaining steel works admitted that it was preparing to axe 100 jobs and desperate steel union leaders warned the government’s Business Secretary, Sajid Javid, that it would be a “catastrophe” if China were allowed to grab even more of the steel market. 

More bad news came for the UK steel industry with the news that a Derby company was turned down for the deal to build new carriages for Northern Rail in favour of Spanish rolling stock manufacturer, CAF.  The order of 31 three-car and 12 four-car electrical multiple-units and 25 two-car and 30 three-car diesel multiple units are all scheduled to enter service by December 2018 and a contract of this import would have made a huge difference to securing the future for Bombardier, the only remaining train manufacturer in the UK.

Any attempt by the UK government to speed up the economy by printing more money (a practice known as “quantitative easing” would devalue sterling and make foreign imports and foreign holidays more expensive.  The credit chief at the Royal Bank of Scotland, Andrew Roberts admitted that the effect of the Chinese growth slowdown means that “the game is up.  The world is in trouble”.   Falling oil prices mean that the London stock market is vulnerable and the North Sea oil industry is in trouble with giants like Shell and BP cutting investment and slashing jobs.  With many of the North Sea operators feeling the pinch, a sinking oil market will also have wider implications for Europe.  With many countries in Africa dependant on income from oil exports, we may see a new wave of immigration into Europe. 

It seems that we’re only just starting to recover from the last recession and we’re already staring another recession in the face.