The fundamental situation in global markets may be summarised as follows: stocks of food (wheat, feedgrains and soya) and fuel (oil) are high, and hence world food and fuel prices are low; interest rates around the world are also low (probably as low as they can go); nevertheless global effective demand is not growing so economic activity is not increasing.
In the UK, except for managers, directors and senior officials, average gross weekly earnings of full-time employees are lower now than they were at the end of the crisis in 2010; in real terms between 5% and 10% lower. So increases in real domestic consumption are not to be expected.
Meanwhile the British government has a persistent budget deficit. A sustained period of economic growth would generate tax revenues that might resolve this situation. Without such resolution, continuously increasing public sector debt threatens the long-term financial sustainability of the state. It is questionable whether the deficit can be addressed by substantial reductions in current spending. The alternative of increasing taxation or extending its scope is neglected.
As international interest rates increase then unless the Bank of England raises UK rates competitively the sterling exchange rate will devalue and prices of tradables will continue to increase in the UK, depressing living standards and putting further pressure on the non-tradables sector (e.g. health and social care).
Whether the recently improved conditions of the global market for manufactures (2015 to date) will be sustained and whether the UK domestic economy will be well enough adjusted to take advantage of the situation are the questions that bear down on Budget Day decisions. The OBR is widely expected to judge that productivity growth in the UK will continue to be poor. How they judge the development of the global market is unpredictable. Whether they judge that anything the Chancellor of the Exchequer does will have significant impact in itself is beyond conjecture.
I can’t envisage external circumstances riding to the rescue of the UK’s economic prospects. I think it’s up to the government to take some steps. My own recommendations are:
· Local authorities should be instructed to commission house-building, to be retro-funded by the properties’ sales.
· Implementation of road-improvement programmes should be accelerated, and cancelled rail-electrification schemes should be restored, and the Swansea tidal barrage project should be funded. This would be paid for by introduction of a 5% Employment Transaction Tax and cancellation of HS2.
· Trident renewal should be abandoned in favour of expenditure on other defence measures (e.g. putting ‘planes on the new aircraft carrier).
· Health service funding should be enhanced by 5%, to be covered in the longer term by repatriated EU contributions.
· Improved and expanded schemes for lifewide learning should be introduced, with associated redeployment of state educational resources (reduction in the school-leaving age and redirection of university finance).
The economic crisis that is just around the corner will only be a crisis for the British state because of persistent failures of the government in terms of economic policy. In particular the failure to address the budget deficit, which emerged at the turn of the century and was accentuated by the GGFC (2007-2010). Regrettably the responsibility for this failure in government policy will be deliberately obscured, presented as the consequences of the Brexit decision and hence blamed on the result of the referendum rather than, more appropriately, on the pathetic inadequacies of the political and administrative establishment (aka ‘the unaccountable élite’). The opportunity provided for this Establishment to enhance existing distractions, of the ‘divide and rule’ variety, in order to sustain the social status quo is unlikely to be missed. This prospect is exceedingly depressing, coming as it does at the centenary of the Great War Armistice and the 50th anniversary of the 1968 évènements; both anniversaries associated with failures to reform ‘the world order’.For a detailed analysis underlying these conclusions go to: