Thursday, July 11, 2013

UK economy - time to hope of recovery?

There is a welcome sign of optimism in the UK. We've waited 77 years, but last Sunday we finally had a nice hot sunny day at Wimbledon. Politicians were also in the seventh heaven of delight falling over themselves to get a mug shot of themselves with Andy Murray. With the British lions triumphant in Australia, and a British rider leading the Tour de France, it seems like the glory days of London 2012 are being relieved. (there was an Olympic bounce in GDP in 2012, perhaps this bounce could return?)

Even the economy seems to be sending positive news. The IMF recently revised upwards their forecast for UK economic growth in 2013. Old favourites like UK house prices and consumer spending have risen, giving renewed hope of economic recovery. But, as John Cleese once remarked 'It's not the despair I can't stand, it's the hope' (hopes for UK economy)

With all this buoyancy and optimism, it's tempting to brush aside some more unwelcome economic news

Not least - falling manufacturing output, falling investment, a widening trade deficit, spending financed by a rapid drop in the saving ratio, future UK austerity to come). The UK picture has all has the hallmarks of a very unbalanced recovery. But, I suppose, an unbalanced recovery is at least better than no recovery at all.


There are many challenges ahead, not least the precarious nature of many people's disposable income. A small rise in rates, could see a precipitous drop in discretionary income. Real wage growth has disappointed for several years. Falling investment for several years leaves low productive capacity.

It's no comfort, but Europe is doing much worse. Unfortunately, the UK recovery is really threatened by events across the channel. The Eurozone crisis may have moved off the front pages, but the threat of debt default, and the continued reality of mass unemployment stalk the continent. It is not something that will  be able to be brushed off with a touch of bond buying. Unfortunately, the longer the crisis drags on, the more difficult a resolution becomes.

A readers questions asks whether aggressive quantitative easing could solve the problems of countries like Greece. I don't really feel qualified to answer this one. But, it would be a start in the right direction. But, I can't get over the rather unhelpful thought that it was really need to be tried 4 years ago.

Other posts

Balanced and unbalanced economies. Unfortunately, the UK makes a very good case study for an unbalanced economy


Stats on EU economic growth - trying to navigate the ECB statistic database is only for the brave or foolhardy.
Impact of funding for lending on bank rates - mortgage rates falling. Good news for some!

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