Lack of investment risks ‘unsustainable’ recovery

24 Dec 13
The UK’s economic recovery could prove unsustainable unless both low levels of business investment and high levels of unemployment are addressed in 2014, the chief economist at the Institute for Public Policy Research has warned.

By Richard Johnstone | 28 December 2013

The UK’s economic recovery could prove unsustainable unless both low levels of business investment and high levels of unemployment are addressed in 2014, the chief economist at the Institute for Public Policy Research has warned.

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In his annual economic analysis, Tony Dolphin said Chancellor George Osborne had promised an economic recovery led by manufacturing industry boosting exports and investment spending. But firms had not matched this rhetoric with extra spending on efficiency improvements and capital schemes.

Investment spending, which the Office for Budget Responsibility in its June 2010 forecast said would increase by 22% between 2010 and 2013, is likely to have fallen by 4% over this period, and remains 24% below pre-crisis levels in 2007.

This is a reflection of the persistent short-termism of business in the UK, Dolphin said. ‘The dominance of finance capitalists has led senior managements to focus ever more on quarterly results and on the need to stave off a potential acquisition or merger.

‘For the economy as a whole, this is disastrous. A low rate of investment means a less productive economy, lower living standards and a lack of competitiveness.’

He warned that stronger economic projections from both the OBR and external forecasters like the National Institute of Economic and Social Research did not mean weaknesses exposed in the finical crash had been eliminated.

He also highlighted that despite the recent fall in unemployment, it remains 770,000 higher than in the first quarter of 2008, just before the recession began.

‘In the global economy we are truly living beyond our means, and have been doing so for three decades. The UK’s trade performance has been hindered in recent years by developments in the eurozone, but poor numbers are nothing new: 2013 will be the 30th straight year in which the UK has recorded a deficit on its current account balance.

‘This is a sign that there is a fundamental flaw in the UK’s economic model. Unless we move to adopt a new economic model, the recovery will prove unsustainable and bittersweet for those who do not benefit from it before it is extinguished,’ he concluded.

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