A bleak picture painted of the UK economy by the latest piece from the Socialist Economic Bulletin:
According to Tom O’Leary the underlying aim of austerity has been to restore business profits, by putting downward pressure on wages, and reducing taxes on business and the rich. But while wages have stagnated, profits have not recovered significantly. As profits lead investment, growth in the latter has been weak, and the basis for an improved growth performance and living standards has so far failed to materialize.
Those on the right would respond to this by engaging in deregulation and further austerity, which might include reducing workers’ rights and environmental protections, and deepening cuts in public spending and taxes. Such policies would be short-sighted and damaging. Those on the left would favour a large increase in public investment in order to ‘crowd in’ private investment. This could be far more beneficial, as growth in public investment has been weak for years, while the burden of regulation remains relatively low internationally. But at the moment the UK has an unassailable right wing government too distracted by Brexit to engage in such a progressive agenda.
The recent fall in the value of the pound should have a beneficial effect on the economy, as higher import prices and a boost to exports help to reduce the current account deficit. Indeed this has finally started to happen. However, the weaker currency needs to be sustained, and exporters need to respond to their increased competitiveness by expanding market share rather than raising their output prices too far, which would undo much of the potential benefit of the devaluation. If they manage to increase their market share and expand output, increased investment in new capacity should follow. More expensive imports from suppliers located abroad could after some time open up new opportunities for growth in domestic supply chains. The government should thus make a sustained weaker value of the pound an important part of economic policy.
In the longer term, Brexit could reduce some of the positive effects of devaluation by reducing access to the European single market. This will of course still depend on the kind of Brexit the government manages to pull off in its negotiations. The combined effects of all these forces will take years to play out. Despite all this, the UK does not need to leave the EU in order to keep the pound at a relatively weak level, but that is not the hand that has been dealt.