Austerity Cannot Explain the Current UK Economic Growth
Taylor & Francis
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Arestis, P., & Sawyer, M. (2015). Austerity Cannot Explain the Current UK Economic Growth. Challenge, 58 149-159. https://doi.org/10.1080/05775132.2015.998155
The purpose of this contribution is to explain the state of the current UK economic situation, without forgetting the prospects as highlighted by the published forecasts for the period to 2019 as explained below. It is claimed by government supporters that the current UK economic growth has emerged as a result of the austerity programme that the coalition government of the Conservative and Liberal Democrats parties in the UK has pursued since the general election of May 2010. The coalition government appears intent at continuing their austerity measures for the next five years to 2019, at least, and the Labour Party has joined in the clamour for continuing austerity. The incoming coalition government in May 2010 placed deficit reduction as central and played much more on doomsday scenarios of the reactions of credit ratings agencies and financial markets if actual and planned deficit reduction measures were not introduced. The current UK economic growth has nothing to do with austerity causing it. It is largely due to the response of households to austerity in their attempt to maintain their level of consumption through borrowing, thereby increasing substantially private sector debt. What is also worrying is the failure of real wages to grow. Average wages grew by 1.25 per cent in 2013, below the consumer price inflation, clearly implying that they fell in real terms. Since then the annual rate of wage growth has fallen sharply. Households at the top of the distribution have been earning an increasing share of national income, while the rest have had to borrow more in order to be able to maintain their consumption needs. Both factors have enhanced household debt substantially as shown below. We proceed by looking at some well-known identities in section 2 to help us make the point, before we turn our attention to the current UK economic situation in section 3. We summarise and conclude in section 4.
External DOI: https://doi.org/10.1080/05775132.2015.998155
This record's URL: https://www.repository.cam.ac.uk/handle/1810/248068