uk economy

Effects of a budget surplus

Effects of a budget surplus

The chancellor George Osborne has recently announced a plan to enshrine budget surpluses in law. It is worth noting, that budget surpluses are quite rare in the past 120 years. The argument of the chancellor is that with national debt ‘unsustainably high’ – periods of economic growth should be taken as an opportunity to pay down debt and reduce the burden for future generations. What is the impact of a budget surplus? 1. Higher taxes / lower spending. To ensure a budget surplus,…

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UK National Debt

The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts. In April 2015, public sector net debt excluding public sector banks (PSND ex) was £1,487.7 billion (80.4% of GDP) Source: (page updated June 1st 2015) Budget deficit – Annual Borrowing This is the amount the government has to borrow per year. In 2012/13 net borrowing was £115bn (7.4%) (Excluding Royal mail and transfers) In 2013/14 net…

Nature of the UK economic recovery

Nature of the UK economic recovery

A look at the nature of the UK economic recovery. Is the recovery sustainable? Who has benefited the most from recovery? Which groups of people have not benefited from the recovery? In the past two years, the UK economy has posted relatively impressive growth figures. The UK posted annual growth of 2.6% between Q3 2014 and Q3 2013. ONS It is impressive compared to Europe, which is stuck in recession. However, the recovery is less impressive when compared to the lost output since…

The limitation of economic data

The limitation of economic data

Readers Comment from UK debt under Labour. In 13 years from 1997/8 to 2009/10, the Labour Government increased debt by about £420 billion. In the 5 years from 2010/11 to 2014/2015, the Coalition Government will increase debt by about £600 billion. These are the facts.   Yes, though I’m always nervous about extracting facts like this. It is true that under the Coalition government of 2010 onwards public sector debt has increased significantly. Debt to GDP has increased at a rapid rate. But,…

Economic growth with falling real wages

Economic growth with falling real wages

The UK recovery paints an unusual situation. We have both positive economic growth and falling real wages. How can we have economic growth with falling real wages? Real wages are not the only source of economic growth. We can see growth from other components of AD – I (Investment), G (Government spending) plus net exports (X-M) Also, it is possible for consumer spending to rise despite falling real wages (at least in the short term). For example, if spending is financed by borrowing or declining savings ratio. Consumer spending could also be…

Economic Growth UK

Economic Growth UK

Economic growth measures the change in real GDP (national income adjusted for inflation; ONS call it chained volume measure of GDP) In 2013 – annual GDP in volume terms increased by 1.7% in 2013. In the past 12 months – between Q2 2013 and Q2 2014, GDP in volume terms increased by 3.2% The peak to trough fall of the economic downturn in 2008/2009 is now estimated to be 6.0% In 2013, GDP at market prices was £1,713,302 million (£1.7 trillion) Updated October 6th, 2014 Recent UK Economic Growth

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Economic impact of welfare freezes

Readers Question: What is the economic impact of proposed welfare benefit freezes proposed by Chancellor, Mr Osborne? Mr Osborne has proposed a welfare freeze, worth £3 billion of savings over two years. This benefit freeze includes Jobseeker’s Allowance, Income Support, Child Tax Credit and Working Tax Credit, Child Benefit and Employment Support Allowance (paid to those judged capable of work). It does not include pensions, disability benefits and maternity pay. The Treasury said that about 10 million households would be affected, roughly half of which are working. The freeze will raise around…

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The problems of a Scottish currency union

If Scotland gains independence, the Yes campaign has argued that their preferred option is to keep the Pound Sterling and enter into a currency union with the rest of the UK. This means sharing the same currency Pound Sterling, and having the same monetary policy. Monetary policy would continue to be set by the Bank of England. There would be no exchange rate between the two countries. Currency Union with the rest of the UK However, currency unions are problematic. The Eurozone has been a disaster for many European countries who have…