National Instituteof Economic and Social Research

UK economic policy and prospects

Jonathan PortesJune 2013www.niesr.ac.ukTwitter: @jdportesNiesr.ac.uk/blog

Slowest recovery in recorded economic history

What explains UK economic underperformance?- Fiscal policy: predictable result of premature consolidation

- Continued dysfunctionality of financial sector

- Commodity prices/imported inflation

- And of course the eurozone

- Fortunately the labour market has come to the rescue..

Blaming the eurozone? Yes and no..Impact of consolidation programmes on level of GDP, 2013

-14

-12

-10

-8

-6

-4

-2

0

Aus

tria

Bel

gium

Finl

and

Fran

ce

Ger

man

y

Gre

ece

Irela

nd

Italy

Net

hs

Por

tuga

l

Spa

in UK

Eur

oA

rea

% d

iffer

ence

from

bas

e

Scenario 1 Scenario 2

Long term damage, here and elsewhere

Short term: signs of modest improvement...

How to minimise the damage? Lots of Plans..

• Posen: public and private investment, BIB, BoE purchases

• NIESR: public infrastructure, NICs, reverse benefit cuts

• LSE GC: investment, skills/human capital, innovation

• Fabians (Pryce, Weldon, Mazzucato, Portes, et al) : state banks, innovation, immigration, inequality, etc.

• “Hayekians”: cut spending “properly”, cut taxes

No-one left to defend “muddling through”, but that’s what we’ll get..

More public investment could boost output in both short and long term..

Can we afford it?.

What does a (medium-term) growth strategy look like?• Building on successes (competition, labour market)

• Addressing weaknesses (management, educational underperformance, planning/housing)

• Identifying and maximising sectors of comparative advantage (HE, finance, creative industries, business services, pharma, hi-tech manufacturing)

• Much of this is common ground – so what are the issues/challenges?

Housing• Housing market contributes to number of structural problems with UK

economy:

– Financial instability– Labour immobility– Inequality/social immobility

• But Help To Buy has achieved the impossible..

• Reforms/investment needed for social housing, planning, and mortgage finance

National Instituteof Economic and Social Research

UK economic policy and prospects

Jonathan PortesFebruary 2013www.niesr.ac.ukTwitter: @jdportesBlog: notthetreasuryview.blogspot.com