Tag Archive for Uk debt

Does Britain Risk a Debt Filled Future?

Among the corridors of economists and financial analysts, there has been largely quiet praise for the UK’s approach to the global recession, the banking crisis and the high levels of debt which have resulted.  The cut backs in Government spending are of course not everyone’s prescription for the troubles and equally many suspect it has hindered and slowed the recovery.

The reality is that much of the UK Government’s spending levels were simply unsustainable and austerity although unpopular would have been inevitable at some point in time.   Increased growth obviously impacts these figures too and a healthy growing economy can also be used to reduce debt levels in tandem with any spending cuts.

BBC News Streaming

For several years this reduction in Government debt levels has been the main focus for the economy, however the Brexit decision seems to have thrown these goals up to the winds of political expediency.   If you watch the UK news and political reports, austerity now rarely get’s a mention – apart from the brief distraction of the Olympics, the talk is all about leaving the European Union.   The reality is that this decision is likely to have a much bigger effect than any trimming of welfare payments or cutting back government departments.

The most urgent problem though is the uncertainty, the simple fact that no-one seems to know what is happening. The protagonists who promoted the leave campaign now seem to have stepped into the background, leaving a variety of pledges and promises in the dust.  The truth was none of these were ever guaranteed and indeed many simply contradicted themselves, and in truth will probably be set aside mostly by the new government entrusted to deliver some sort of Brexit result.

It looks like nothing much is happening soon, and the uncertainty looks likely to continue for months and possibly years to come.  There is a suspicion that something is happening behind closed doors, in the corridors of power some sort of workable compromise is happening but we may just have to wait and see. Until then it’s almost certain that economy will start to shrink, maybe slowly but the current situation is not conducive to growth.

Business investment has already hit a 10 year low, as companies wait for direction.  There are lots of rumours of impending trade deals and agreements, but none of these can actually be implemented until the country leaves the European Union so all the talk is very premature.

Many seem to see the ‘free trade deals’ as a passage to huge prosperity and a sales fueled bonanza for a UK freed from the shackles of the EU.  The problem is that ‘free trade’ can also be extremely detrimental to an economy as well as being beneficial.  It’s why these agreement sometimes take a decade to negotiate, a bad deal can be much worse than no deal at all.  International trade, even is you simply use the base economic model of comparative advantage can be a complex and difficult area. Establishing a ‘free trade’ agreement sounds like a simple, beneficial thing to establish however it’s implication is that you offer trade advantages over other countries, which can have huge knock on effects in an economy.

The worry for the UK economy is on many fronts – the indecision, the confusion and what is actually going to happen.  Sometimes no decisions are actually worse that ‘bad decisions’ – government debt is only going to increase while the confusion remains.

Jim Harvey

Author of Online IP Changer

IMF States Economic Recovery at Risk

It seems like these comments come along every week, in fact you’d probably manage to find IMF comments to support most divergent policies if you looked hard enough.  Although their latest statements regarding the economy rings very true with us on Jubileesouth.org.

It’s focussed not on our national debt for once, but on the household debt figures – the amount of debt that an average British household has to cope with.  Just like any sort of debt, it has to be serviced and can have a huge effect on our daily lives and the economy in general.  It’s quite simple really, an economy grows if it can stimulate demand and keep it’s output growing.  However domestic demand is obviously going to be related to our spending power, of which Britain has a problem.

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Families in the UK simply have more debt than the vast majority of developed countries, in fact the only comparable country is Portugal.  This is a country which has already sought emergency funding because it nearly ran out of money, it’s not a club that the UK wants to be a member of.

IMF suggests that household debt is 87% of GDP in the UK, compared with 82% in Portugal, 72% in Spain, 55% in Germany and less than 40% in France and Italy.

So are UK families excessive consumers?  Do we wander around on credit fuelled spending sprees and consistently live beyond our means?  Well the answer is no, not particularly our debt levels are largely due to our obsession with home ownership.

Houses are expensive in the UK, largely due to the laws of supply and demand.  The UK simply doesn’t have enough houses and demand is always very high. it’s simply hard coded into our identity – own your own home at all costs. Prices are unlikely to fall in the short term at least until some serious increases in supply are undertaken which also seems unlikely.

Just take a look at the UK media, get yourself a subscription to a proxy service like this and have a look at the BBC and other UK TV services.  You’ll see evidence of the UK’s obsession with home ownership pretty quickly, thousands of hours every week with buying, selling and upgrading property.

The problems is that this particular desire is extremely expensive, house prices are amongst the highest in the world and even the process of buying a house is expensive. Yet we all try and do this, an inevitably take on huge levels of debt in order to own our own home. Never mind property costs, first you have to deal with estate agent fees, removal costs, and stamp duty – average cost of moving or buying – about £12,000 currently.

UK consumers are unlikely to be able to either save enough or spend to fuel a domestic demand driven recovery with these sort of costs to contend with.  But until we change our outlook about owning property then it is likely that household debt is likely to stay extremely high.

Jennie Calwood

http://www.uktv-online.com/