Readers Question: How does the UK’s economy compare to other European countries such as France in terms of the UK’s seeming reliance on House Prices and consumer confidence to drive the economy. Is there a better way and why don’t we use it.
I was interested in making a comparison between the UK and French economy. and wrote an Essay on The French vs UK Economy.
Generally speaking, most economists argue that the UK economy has performed better than the French economy in recent years. However, you are right to suggest that the UK economy has relied to a large extent on consumer spending, driven by rising house prices. Arguably this growth has been unbalanced and if house prices fall significantly it will lead to lower growth in the UK and in the future, the situation could be reversed.
Is there a better way to do it?
I think it would be beneficial to reduce the impact of the housing market on the macro economy. Because many householders take out variable mortgages which are a high % of their disposable income, it makes the UK vulnerable to any swings in the Interest rates (and therefore a good reason for UK to avoid the Euro)
The government are trying to encourage longer fixed rate mortgages, but, it is not easy to change a culture of home ownership which is strongly embedded in the UK.
The UK has also suffered from the relative decline of its manufacturing export sector; but, it is not easy for the government to change this.