There is a disconnect between economic growth and living standards in the UK and ordinary workers are bearing the brunt. While politicians seize on data showing that the economy is growing at a reasonable pace, average real wages have largely stagnated for the past decade.
Simon Wren-Lewis illustrates here the uniqueness of the UK economy among rich countries, in that it experienced positive overall GDP growth and falling real wages between 2007 and 2015. This implies of course that job growth has been strong, and indeed it has, with record numbers in work. Unemployment has fallen, but there has also been significant population growth. So while our political masters crow about record employment levels, they keep fairly quiet about the fact that this has been made possible by the immigration flows that they claim will slow after Brexit. Continue reading →
Chris Edwards says the privatizations started by Thatcher “transformed the British economy” and boosted productivity. This raises an under-appreciated paradox.
The thing is that privatization isn’t the only thing to have happened since the 1980s which should have raised productivity, according to (what I’ll loosely call) neoliberal ideology. Trades unions have weakened, which should have reduced “restrictive practices”. Managers have become better paid, which should have attracted more skilful ones, and better incentivized them to increase productivity. And the workforce has more human capital: since the mid-80s, the proportion of workers with a degree has quadrupled from 8% to one-third […]
Oxford Professor Simon Wren-Lewis blogs here that UK households are set to lose out from the effects of the vote for Brexit over the next few years due to slowing growth in overall income. This is according to recent Bank of England forecasts for the UK economy.
While overall growth in GDP is forecast to be relatively strong compared to other rich nations, average growth in household income may be zero or even negative during this period.
This is due to the sharp fall in the value of the pound, which makes imports more expensive, and is already contributing to a rise in inflation.
Higher inflation means that a typical consumption basket is more expensive than otherwise, and this reduces real household incomes, other things being equal.
What are the likely impacts on the UK economy from the weaker pound? A recent report from the British Chambers of Commerce (BCC) has warned of sluggish growth in the UK during 2017 and beyond. It blames uncertainty over Brexit, along with higher imported inflation and weaker consumer spending due to the sharp fall in the value of the pound since the June referendum on EU membership.
The BCC focuses on a squeeze on consumer spending in the months ahead. This is one effect of a weaker currency: higher prices of imported goods and services will tend to push up overall inflation, meaning consumers will be worse off in real terms if real wages do not rise. Put simply, the pound in our pockets will not go as far. Continue reading →
Success breeds success, and failure breeds failure. This seems to be the trend in the UK’s regional inequalities, as pointed out last week by Andy Haldane, chief economist at the Bank of England. The division in growth rates and income levels between London and the South East, and the North, are particularly stark. Only in the former are income levels now above those before the Great Recession, which began more than eight years ago, while the latter has fallen further behind.
This regional divide is not a new phenomenon. It has been the result of decades of uneven economic development in the regions of the UK. The almost relentless decline in the share of manufacturing output and jobs for the UK as a whole, particularly since the 1980s, hit the North of England and parts of Wales hard. Private sector dynamism has tended to be concentrated in London and the South East, particularly in the service sector, which makes up the majority of GDP and employment.
Successive governments have responded in different ways to regional inequality. Continue reading →
Last week the UK government’s new Chancellor of the Exchequer, Phillip Hammond, known to some as ‘spreadsheet Phil’, gave his first Autumn Statement to parliament. This outlines the state of the UK economy and the government’s finances, and announces new policies on government tax and spending.
The forecasts of the Office for Budget Responsibility for the UK economy’s likely trajectory over the next few years were somewhat gloomy, and laid much of the blame for this at the door of the decision to leave the EU, or Brexit. Growth will be slower, investment weaker, and public borrowing and debt higher than otherwise.
I will avoid reiterating details regarding the Autumn Statement that were covered in last week’s press, and instead focus on the potential for debt reduction and overall economic performance over the next few years, which the government is trying to manage and improve upon: the Prime Minister wants an economy that ‘works for all’. Fine aspirations indeed. Continue reading →
The Economist magazine has a piece this week on the role of manufacturing in the UK. While it half-heartedly concludes that a larger, more competitive manufacturing sector may benefit the economy, it suggests that today’s shrunken sector is increasingly employing only highly skilled workers on high wages, producing hi-tech products. The piece argues that the hope that a larger sector would directly benefit those currently left behind by its relative decline over the last few decades is a forlorn one. In other words, jobs which pay more moderate wages and demand fewer skills would not be created, given recent trends.
I disagree. This argument merely extrapolates trends which were at least in part due to the periodic and sustained overvaluation of the pound vis-a-vis our trading partners. I have argued here recently that the serious imbalances in the UK economy could be significantly reduced by an economic strategy which gives a greater priority to a lower exchange rate. Continue reading →