Amid news that the pound has sunk to a 28 month low on no deal Brexit fears, I thought I should revisit an oldish report from the Institute for Policy Research, which pointed out that:
The decoupling between wages and growth coincides precisely with the UK’s trade (and current account) deficit. The UK’s debts to the rest of the world more than doubled in size between 2010 and 2016. This in turn followed the crash in the value of sterling in 2009. This would suggest that rising import prices, caused by a weaker pound, have driven a wedge between the prices of domestic output and the prices actually experienced by consumers. It is this which has caused the decline in real wages relative to GDP.
This coinciding of a depreciating currency value, a widening current account deficit and a fall in real wages points to an economy that is seriously unhealthy. With the business sector now a net saver in the economy and the government’s austerity policy keeping overall demand weak, growth has largely been driven by household consumption, much of it fuelled by unsustainable levels of debt. Equally worrying is that UK industry has not been able to take competitive advantage of the devaluation in the pound to raise exports, output and wages.
What the author should have added is that manufacturing doesn’t flourish because Britain no longer makes much – in the UK it is roughly 10% and the lowest level of any advanced nation. It is usually close to 20%.
The Johnson government’s wreckless no deal approach to Brexit is exasperating the problem of wage stagnation and making us all poorer – and we haven’t even left yet….
So trashing the exchange rate when Britain has an enormous balance of payments deficit is not what you expect from a caring – or even competent – government.
Especially when there is a US/China trade war and China’s slowdown means that even Germany is encountering problems, where the big automotive supplier, Eisenmann, with 3000 employees, has filed for bankruptcy.
To be purposely self inflicting harm to the UK economy at this difficult time is madness, but the zealots in our government – and there seems noone else – couldn’t care less.
Their cult comes first.
Is Labour part of the cult?