NIESR: The Economic Landscape of the UK

10 May 2017 12:32 PM

In the Commentary of the May 2017 National Institute Economic Review no 240, to be published on May 10th, NIESR Director Jagjit Chadha highlights the key structural issues facing the UK economy as the country gears up for the general election in June.

Prof Chadha wrote: “Nearly ten years on from the start of the economic crisis in 2007/8, we can observe that, despite innovation in macroeconomic policies, income per head has not recovered especially well, it only passed the peak of 2007 income per head in 2015. In comparison to the recovery from previous post war recessions, there has been very disappointing growth in the overall level of income since 2007/8.”

He added: “The widespread adoption of rules for fiscal and monetary policy has not improved long run performance and indeed may have done little to encourage addressing the more fundamental questions of productivity growth. This deterioration in the performance of productivity frames the main and continuing economic problems: low real wage growth; low levels of investment and a dwindling capital stock; uneven performance at the regional level; rising perceptions of income and wealth inequality; the risk in the household balance sheet from the emphasis on housing as a store of wealth; the lack of infrastructure and R&D expenditure; the concentration of financial intermediation in property based lending; and the evolving need for monetary-fiscal-financial coordinationThese major problems are well understood and predate the issues raised by the decision to leave the European Union.”

Prof Chadha observed that “large and persistent inequalities in productivity across UK regions have become a key issue”, with only London and the South East showing levels of productivity above the national average, adding that questions must be asked about the role of trade and FDIs on the one hand, and public investment on the other in alleviating the problem.

He concluded: “The conventional wisdom is that this election is about the UK’s decision to leave the EU and this is clearly a critical question. But we may, once again, be in danger of letting the urgent drive out the important. Political parties should not shy away from facing the question of Britain’s underlying economic weakness and should be called upon to offer solutions that address the lost decade of economic growth the country has endured”.

Read the full commentary here.

Notes for editors:

This press release is based on an article entitled “The Economic Landscape in the UK” written by Prof. Jagjit Chadha, published in the National Institute Economic Review No. 240 May 2017, and funded by the Nuffield Foundation as part of its work to ensure public debate in the run-up to the General Election is informed by independent and rigorous evidence

This journal is a quarterly, peer reviewed, economic and social sciences journal. The full Review will be published tonight (wednesday 10th May).

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