Advertisement
Macroscope | How to save the UK economy: spend big on industry like China
- UK recession fears are growing, amid rising interest rates. This is part of a bigger picture of industrial gloom and poor productivity
- Investment spending in the UK accounts for 17 per cent of GDP, less than the US and China. Britain must invest more to keep up with industrial competitors
Reading Time:3 minutes
Why you can trust SCMP
1
Britain’s economy is in a mess, flirting with recession while lumbered with both high inflation and interest rates that are reaching their highest level in 15 years. British mortgage borrowers are shell-shocked after base rates hit 5 per cent last week, well above levels that many homeowners thought possible when they cashed in on cheap, fixed rate deals with interest rates running close to zero not so long ago.
Advertisement
Britain’s economic underperformance is often blamed on Brexit but in truth the real malaise lies in decades of underinvestment in industry and a poor productivity record compared with its international competitors.
It’s a feature of Britain’s long-term industrial decline, chronic business sector uncertainty and skewed overinvestment in the housing market. With the United Kingdom government increasingly focused on political infighting and seemingly indifferent to the real needs of the economy, Britain’s industrial gloom will only get worse.
UK policymakers seem all at sea over how to handle the deepening crisis. The government lacks resources to fund a major fiscal reflation, especially with public sector debt reaching over 100 per cent of gross domestic product for the first time in over 60 years.
Meanwhile the Bank of England seems intent on curing Britain’s inflation by running high interest rates, deflating domestic demand and raising the risk of recession in the process. UK money market futures are already anticipating that interest rates might top out as high as 6 per cent in the coming months.
Advertisement