Transcript
St. Michael, Earl of Bensalem. UK ECONOMIC REPORT
1. Writing in present time, October 2013, the short term prospects look average but the long term prospects look dreadful. 2. The UK is a developed country who is currently implementing Austerity economic policies to dampen the short term prospects in the hope of a better long-term future. This is expected to 2017/2018 but could quite easily extend to 2020 and beyond. The 2007 financial crisis and subsequent 2008 recession/depression (i.e. the ‘credit crunch’, ‘oil crisis’ and ‘food crisis’) severely hit the UK economy is every area and was followed by the European sovereign crisis also severely hitting the UK economy. 3. The four main economic factors; i. Economic growth; 1. In the short run, this seems to be going quite well with optimism and confidence rising in each and every measure. a. Consumption has been rising on the back of low interest rates and a huge budget deficit. Confidence is gradually improving since the mass media has concentrated their scare mongering on Europe instead of the Economy. b. Business investment has been sluggish since about 2007. However confidence and the Bank of England’s promise of low interest rates is slowing pushing up investment. c. Government borrowing is still too high. d. Exports are currently experiencing an ‘Export J-Curve’ i.e. foreign consumers and domestic consumers are currently adjusting to a lower sterling currency after the massive devaluation of approximately 25% in recent years. Ultimately what this means is that British exports are relatively cheaper but British imports are more expensive so it should, all things being equal, improve British exports in the long run. However, we sell and produce hi-tech manufacturing, medicine and a lot of business services so a weak European market (Approx. 50% British imports and exports) is currently hindering those. But Asian and African growth is a huge potential market for the future. e. There has been an emergence of an ‘Austerity J-curve’ whereby the budget situation hampered growth originally but people adjusted and growth is growing again. However,
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St. Michael, Earl of Bensalem. this may just be the inevitable consequences of the 2007 financial crisis and 2008 recession/depression. f. Consumer incomes have fallen dramatically and have led to a ‘cost of living crisis’. g. Labour market flexibility is getting stronger with the gradual acceptance of zero hour contracts. 2. In the long run, the situation is rather dreadful. a. The deficit and debt is too high which will definitely hinder economic growth with higher taxes needed in the future to pay for it. b. The long term and youth unemployed are losing valuable skills and may require future training. c. The Education system is not training people to think critically and creatively whilst computer programming skills are not being universally taught. Consider a ‘big data’ and highly computerised world, Britain (and others) are going to be severely hit in the future. d. Growth is being sustained by low interests, Quantitative easing and cheap credit from Asia. This is leading to Austrian Business cycle problems in gold, housing and equities (shares). e. The weak exchange rate (caused by low interest rates moving capital to safe havens like gold and the Swiss Franc) is pushing up the price of imports notably crude oil, however in the future this should incentivise us to move away from oil like the 1973 oil crisis did to create the 1980s oil glut plummeting prices via conservation and increased fuel efficiency in houses and cars. f. The UK has an energy problem in that it could very easy run out of energy. However, France is on nuclear; Germany on renewables and America is on shale gas. But India, China and other Asian/African countries will need oil soon but this is expected to come from increased Iraqi production and countries with economic sanctions by the USA and EU (i.e. Iran and a few others). Venezuela and natural gas could save us in the short term but nuclear is definitely needed in the long term for a guaranteed source of energy. g. Innovation along with Research and Development seem to be going strong but the benefits to the UK and the UK economy are huge but this may not continue in the future. h. 4G is currently on a slow start but increased broadband speeds and cheaper transport costs (from Low Cost Airlines on long haul flights) are expected. 2 E-mail;
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St. Michael, Earl of Bensalem. i. Productivity and efficiency are low and have been decreasing in recent years. j. Concerns over Britain being in the EU are widespread and causing business investment uncertainty. Concerns have also been raised about QE, low interest rates, high unemployment (especially unskilled and youth), gold prices, share prices and a housing bubble may (and will, I think) cause heavy future damage. k. Corporation tax is relatively low (but still too high). Tax evasion and the internet will put pressure on government taxation revenues. l. Joining the Euro or leaving the pound sterling has been ruled out by the present Cameron Ministry. ii. Unemployment; 1. Short run – the situation appears to be improving. a. Figures show that unemployment is failing gradually. This may be inevitable but it could be worse. b. Zero hour contracts have been increasing labour market flexibility whilst minimum wage employees have helped kept inflation low (especially immigrants). c. Long term unemployment is very high as it youth unemployment. This may require retraining. d. Immigration has lowered inflation but may have resulted in a loss of British jobs. However the industry and type of jobs that they have ‘taken’ leads to doubt whether or not they ‘took’ jobs from British workers. This policy is highly controversial but free trade, Europe and low inflation are far more important priorities when considering the future. 2. Long term – the situation is unknown. a. We have no idea of what the future industries are and firms all around the world have been in patent wars. b. We also have no idea of whether British firms will adapt to these changes and whether the British education system will produce the right quality and type of workers. c. Long term unemployment could reduce capacity. iii. Inflation; 1. Short run; 3 E-mail;
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St. Michael, Earl of Bensalem. a. In recent years there have been fears of deflation due to the financial crisis but there have also been periods of high inflation (above 5%). b. Low inflation has helped Germans economy recover after being the ‘sick man of Europe’. This was largely a result of the Hartz reforms and there improvements to labour market flexibility and lower wage inflation. The closest British policy is zero hour contracts and to an extent the minimum wage. c. The causes of inflation don’t seem to be demand push since there is an abundance of capacity. Cost push inflation has resulted from higher taxation (VAT being the main one) but also a reduced exchange rate (making imports like oil more expensive). It is expected for expectations and spending patterns to change but when is another question. d. QE and low interests are causing huge asset price inflation with help to buy causing another housing bubble. e. It is important to note what is rising and where inflation is impacting are extremely important. (The periods of high inflation were helped by an increase in tuition fees which don’t usually impact business costs). 2. Long run; a. Immigration has definitely increased labour market supply and competition is a few (low pay, low skill) industries. Whether or not this will continue is a huge question. b. The European Free Trade agreements are currently dependent on Britain being in the EU and if Britain leaves then an import tariff is implemented which could have serious consequences. c. Ed Miliband’s ‘promise’ to cap fuel prices for 20 months may restrict supply or lead to higher fuel prices now or in the future. (However if they rise too high consumers will be incentivised for more efficient fuel instruments and conserve more). d. More free trade and African-Asia competition should reduce worldwide inflation. The Doha WTO round is being delayed by questions on agriculture protectionism. iv. Balance of payments; 1. Britain and America have largely relied on cheap credit from overseas to fund a consumption and government spending boom which negatively impacted the housing market. This policy is expected to continue. 4 E-mail;
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St. Michael, Earl of Bensalem. 2. The balance of payments in goods may decrease depending on whether Africa attempts to undercut Asia as a mass producer thereby reducing prices and thus British spending on these goods. Whilst increased demand for hi-tech manufacturing such as military jets and medicine may increase but this will only happen in the long run except in cash/oil rich countries. 3. The balance of payment in services may increase if European growth picks us along with Asian-African growth. However other competitors must emerge, regulation/protectionism may also emerge whilst these countries might develop their own industries in these areas.
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After emerging from the 2008 recession/ depression there are still many economic problems including; a. Dot com bubble 2 – social media websites aren’t making much money yet have ridiculous values. If it a fashion trend and if they are seen to be ‘uncool’ they make collapse astronomically. b. American debt – the debt ceiling saga is a recent episode and will likely continue. c. The never ending Eurozone crisis. d. Gold – seen as a safe haven during 2008. New supplies will emerge and demand will weaken when other (safe) investment opportunities occur. e. Housing bubble – help to buy and low interest rates are helping maintain a high housing price. f. Share price/equity/asset price bubble – due to low interest rates, massive QE in various countries and the lack of (safe) investment opportunities. g. Bank of England interest rates rising will effect UK investment, savings, borrowings, exchange rate and everything else including inflation and economic growth. When (and if, Interest rates rise or fall depends largely on inflation (historically) and unemployment (currently)) and how fast to what limit will change everything. h. The energy market is still very volatile and Miliband could destroy it. i. The education system has yet to adapt to the modern world. j. The environment effecting weather with insect migration impacting world food. k. TOO MUCH GOVERNMENT. l. STILL – TOO MUCH GOVERNMENT.
5. The UK has underlining weaknesses; Hatred of foreigners. The UK is too short term and often neglects the long term. TOO MUCH GOVERNMENT. Refusal to accept second place in the world (good thing) but the ability to blame everyone but themselves is not a way to recover and learn from mistakes. 5 E-mail;
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