Interesting write-up over at portfolio.com about the issues Britain is facing:
The deflation of the British housing bubble has only just begun. Prices, which rose at roughly double the U.S. rate over the past decade, tumbled about 10 percent from their peak in August 2007 through the middle of this summer. Inflation and unemployment are rising, and Britain is in a bear market.While the pound has crashed against the dollar over past week, the decline against the Euro can be tracked all the way back to last summer when the global housing downturn (and much of their problems) were revealed.
Things might become worse in Britain than in the U.S. Consumers are more indebted; financial services make up an even greater portion of the economy; inflation takes a much more significant bite because the British have to import so much.
Update: more bad news for Britain...
Merrill has a British operating loss of about $29 billion that it can carry forward indefinitely for tax purposes. The newspaper calculates that at the current corporation tax rate of 28 percent, the bank will be able to offset losses against future profits, reducing its tax bill in Britain by as much as $8 billion.