The United Kingdom’s economic policy is founded on the principles of free market capitalism. Since the Thatcher government in the 1980s, successive UK governments have emphasized privatization, deregulation, and the weakening of trade union power. The economy of the UK is currently strong, according to analysts such as Kavan Choksi, with low unemployment and inflation. However, economists are warning that a number of factors could threaten this stability in the future.
The current state of the UK economy
The United Kingdom’s economy is currently in a good state. GDP growth was 1.7% in 2017 and is forecast to be 1.4% in 2018 and 2019. This is lower than the 2% average for developed economies, but it is still positive growth. Unemployment has fallen to 4.3%, its lowest level since 1975. Inflation is also low, at 2.6%. This means that wages are rising in real terms (after taking inflation into account), which is good news for workers.
The fiscal deficit (the amount by which government spending exceeds revenue) has also fallen, from 9.9% of GDP in 2009/10 to 2.4% in 2016/17. The government’s goal is to achieve a surplus (when revenue exceeds spending) by the mid-2020s.
However, there are some caveats to this positive picture. First, productivity growth has been very weak since the financial crisis of 2008/09. Second, the UK’s trade deficit (the amount by which imports exceed exports) reached a record high of £48 billion in 2017. This is partly due to the fall in the value of sterling since the Brexit vote, making imports more expensive and exports less competitive. The government will need to address these issues if it wants the UK’s economy to continue growing strongly in the long term.
Some economists are warning that there are a number of factors that could threaten this economic stability in the future. These include:
Brexit
The United Kingdom’s decision to leave the European Union has created uncertainty about the future trading relationship between the UK and the EU. This could lead to firms investing less and hiring fewer workers. So far, these effects have been relatively small, but they could become more significant if negotiations between the UK and EU break down without a deal being agreed upon.
The high level of consumer debt
Another potential problem for the UK economy is the high level of consumer debt. Households now owe £1.56 trillion, which is equal to 78% of annual GDP. This is higher than at any other time since records began in 1987. If interest rates were to rise or unemployment was to increase, many households would struggle to meet their debt repayments, leading to more defaults and foreclosures. This could cause a sharp decline in consumer spending, which would lead to lower economic growth and potentially create a spiral of falling demand and further job losses.
Final word
Overall, the UK’s economy is currently strong, but there are a number of potential threats on the horizon which could cause problems in the future. These include Brexit, which has created uncertainty about trading arrangements between the UK and EU, and high levels of consumer debt, which could lead to defaults and foreclosures if interest rates rise or unemployment increases.
