UK Economics 2015

All of the opponents in the UK general election have ignored some disturbing facts about the UK economy: productivity is down and the trade deficit or balance of payments deficit is up. They have few or no real policies to improve either.

Productivity was down by 0.2% for the last quarter of 2104 and overall our productivity as a nation is insufficient to get the economy moving and reduce our budget deficit and national debt.

To improve productivity we must invest in skills, manufacturing equipment, infrastructure, house building, new products and the means to bring new products to the export and domestic markets. An improvement in productivity will enable our nation to compete more effectively in international and domestic markets. It will also allow us to reduce the debt burden.

It is apparent that very little of the £375 billion of quantitative easing (QE) generated by the Bank of England has been directed at investment in the real economy. Such a large input of liquidity into the economy should have generated some inflation in the real economy - so far it has not. Inflation helps to reduce the burden of debt. The billions spent on QE have been used by the banks to support their balance sheets by investing this money in the stock and property markets. The effects of QE are to artificially inflate asset prices in the property and stock markets. This form of inflation is not included in the inflation statistics therefore there is no real pressure on the Bank of England to control it. We are in danger of creating new asset bubbles just like we did prior to 2007.

 QE is benefiting property speculators and financiers rather than industries in the real economy who produce goods for sale or build roads, railways and hospitals etc..

When it is more productive, the real economy generates more higher valued jobs and this means that the government needs to spend less on social benefits.

http://uk.reuters.com/article/2015/04/01/uk-britain-employment-productivity-idUKKBN0MS48J20150401

Linked to productivity is the balance of trade deficit. For the month of February 2015 Britain's overall balance of trade deficit was £2.859 billion up from £1.536 billion in January. Our exports to the US fell in February 2015. Every year Britain records enormous balance of trade deficits and this means that we are not paying our way as a nation and we have to live on credit. Poor productivity along with the higher value of the pound contributes to the balance of trade deficit.

Huge amounts of hot money are continuing to come into Britain to fuel financial speculation; this increases the value of the pound and makes our goods more expensive in export markets. Our pound is not increasing in value because we are running a trade account surplus. Hot money is not being used to fund the real economy therefore productivity suffers and the balance of trade suffers too.

http://www.tradingeconomics.com/united-kingdom/balance-of-trade

We need a new economic model of capitalism which generates wealth in the real economy. Our governments have almost left the running of the economy to the Bank of England who are using interest rate policy and QE to try to regulate financial matters only. We need the Treasury and the Department of Business to get more involved in running the economy. Monetary policy alone will not solve the structural problems of the British economy: we need to become more productive. A central bank cannot be expected to direct monetary policy towards this end. Fiscal policy must become more involved again. It was a mistake to allow the central bank to determine economic policy as it is more concerned with protecting finance rather than industrial investment.

The next government of the UK must rescue fiscal policy and industrial investment as part of a completely coherent economic and monetary policy to control supply and demand and investment in the real economy and its workers.

None of the political parties in this election have mentioned the trade deficit or the failure of Britain to improve its productivity. It almost seems as if the political establishment has given up promoting sound  and stable economic development. Our politicians seem only interested in arguing about book keeping rather than using the money of the nation to create real wealth. They are thinking more like sales ledger clerks than management accountants. If they continue in this vein there is not much hope for a real economic recovery. Long term stagnation,lost opportunity and continuing poverty for a substantial proportion of the population could be the unfortunate result.

It is time for the politicians to have the courage and nous to wrest back economic power from financial speculators and grant it to the wealth creators in the real economy of entrepreneurs and workers alike.