Is the United Kingdom returning to growth?
The United Kingdom is currently experiencing one of the worst recessions in its economic history. The current recession has a lot of differences, though, with the ones the economy has experienced in the past; inflation is at relatively lower levels and Foreign Direct Investments still flow in the economy. On the other hand, it appears that both instruments (fiscal and monetary policy) that could lead the economy back to a growth path are currently ineffective. A fiscal policy has a focus on austerity with significant reduction in public spending and a monetary policy with interest rates at a historical low and quantitative easing ineffective mean that there is no obvious way out of the current situation.
This new economic reality calls for new economic approaches. Commentators from Hargreaves Lansdown in a discussion around the growth potential of the UK have focused a lot on a concept that currently determines the economic conditions:
‘Is this recession about to end?’
Disclaimer: This video has been provided by Hargreaves Lansdown and is not personal advice based on your circumstances. For more information visit the Hargreaves Lansdown website.
Confidence, or lack of it to be precise, is the key word. The current crisis, above all, is a crisis of expectations. Uncertainty for the future means that businesses and consumers are waiting before making any major decisions. Businesses prefer to sit on their cash and not invest and consumers are unsure about their economic future and thus postpone consumption for a later date. Lack of confidence about the future economic prospects is one of the key factors that keep the economy from growing at the moment.
Is there a way out? The answer is positive but not simple. It requires significant coordination efforts and possibly a more focused and targeted economic policy. Horizontal cuts and general austerity will not create the necessary economic environment and will not restore confidence. The current situation requires a strategic perspective on things with targeted spending on education, infrastructure and new technologies and an approach that is not influenced by electoral cycles. It also requires a social consensus that hard measures are required for the future to be brighter.
Dr Fragkiskos Filippaios
Dr Filippaios has worked as a consultant for the Ministry of Development in Greece and published in internationally recognised academic journals. Currently, he contributes to Kent Business School’s undergraduate, postgraduate and executive teaching as well as to the design of new programmes. He also acts as a reviewer for various international journals, is an Association of MBAs Accreditation panel member and also an active member of the Academy of International Business and the European and International Business Academy.
His previous expert comments include:
27 July 2012: How will the Olympics benefit Britain?
7 June 2012: Andrew Tyrie ‘calls for Greece to quit euro’
24 May 2012: Will Greece leave the euro?
February 2012: Dr Filippaios appeared on Cross Talk with RT News debating this issue, which can be viewed here.
Kent Business School
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