- The conventional wisdom is that this election is about the UK’s decision to leave the EU and this is clearly a critical issue. But political parties should not shy away from answering the question of Britain’s underlying economic weakness.
- The disappointing growth in the level of GDP since 2008 points to a ‘lost decade’ for the UK. Income per head has barely exceeded its pre-recessionary level against a typical post war expectation of growth of income per head of 2% or more per year.
- The main macroeconomic debates have centred on stabilisation policy and the widespread adoption of rules for fiscal and monetary policy.
- Such an emphasis has neither improved long-run performance nor encouraged addressing the more fundamental questions of productivity growth.
- Productivity weakness frames most of the key developments in the UK economy with stagnant real wages, low levels of investment and a dwindling capital stock, uneven performance at regional level, rising perceptions of inequality and the lack of infrastructure and R&D expenditure and the concentration of financial intermediation in property-based lending.
- The large and persistent inequalities in productivity across UK regions must be seen as an urgent policy priority, with only London and the South East currently showing levels of productivity above the national average. Questions must be asked about the role of trade and FDIs on the one hand and public investment on the other in alleviating the problem.
- The monetary–fiscal-financial mix with loose monetary policy, fiscal policy focussed on limiting expenditure rather than increasing public investment and financial policy limiting risky lending may need to be reset.
Figures in the chartpack may be used but reference must be given to NIESR