Growth in manufacturing, construction and
agriculture as well as the service industry
Output just under 2013 peak-recovery
is merely restoring economy to pre
recession
services make up 80% of UK GDP
over dependent on services, need
more growth in manufacturing
sector
In the past manufacturing was great, some people argue
it is essential for job creation, productivity gains, and
exports and imports.
Unemployment
Unemployment has
fallen- but only by a small
amount
Could be as a result of
seasonal changes, i.e. more
jobs in spring/summer
Long term unemployment has risen
definition
Consequences
e.g. Hysterisis
opportunity cost in lost
production, economy is operating
inside PPC curve
adds to government deficit and
national debt - unemployment
benefits
Despite of the recovery the long
term unemployed are being left
behind - jobs are going to new
entrants into the job market
Employment rate has fallen
The percentage of the working age
population who are employed
could be as a result of the long
term unemployed no longer
putting themselves forward for
work
Hysterisis
leads to a loss of skills and human capital,
workers could become used to being
unemployed and living on a lower wage and so
would be less motivated. This could result in a
permanently lower labour supply even after
demand returns to normal. So unemployment
may not return to pre-recession levels
Professor van Reenan conclusion: The extent of long
term unemployment, and large scale non-employment
could harm potential future growth of the economy -
by curbing AS and AD
Fig.1.1
Doesn't believe growth is
sustainable- components of
AD are not high enough
Net business lending is falling - not
enough people are borrowing to finance
consumption and not enough firms are
borrowing to finance investment in extra
capacity or more productive technology
Growth is low compared with Canada and USA
Some part of growth is because of the 2012 Olympics -
investment in infrastructure, increased consumer
spending and spending by overseas visitors (invisible
exports). This would have had a multiplier effect however
most of the boost would have been temporary and if
without the games the UK growth is even more
disappointing
Blames austerity- tax rises and government
spending cuts decreases consumer and
investment spending and so AD.
'talking down the economy' would decrease
confidence and become a self-fulfilling prophecy
Raised concerns about another recession -
did not come true - UK economy grew 0.8%
Q1 + Q2 2014, in Q2 2014 GDP was 0.2% ore
recession peak in 2008
Fig.1.2
Real wages continue to fall as price
rises outstrip wage rises - reduction in
spending power
With lower real incomes, consumer
spending will be restricted
GDP per head is 7% below
2007 peak - but part may be
because of population
growth
no movement from consumption towards investment and exports
(to boost productive potential and improve the balance of
payments)
manufacturing sector hasn't increased - deemed crucial by some in
terms of productivity gains, growth potential, employment and
improving net trade
Exports have fallen despite a 20%
depreciation in the exchange rate
should have made exports more price competitive, so
exports would have increased and imports decreased
high exports and low imports hinders growth,
worsens BOP and leads to job insecurity
exports and imports can act as a drag on growth - it will reduce AD and worsen the
BOP, this can result in more borrowing and so increase the interest burden on the UK
economy
Conclusion
The growth that has occurred since the data was
collected suggest the performance has been better
than the pessimists feared
However the weaknesses identified still
need to be addressed
evaluation conclusion: note the progress made but stress
the weaknesses in the economy: high long term
unemployment, growth remains comparatively low,
external trade remains disappointing, government debt is
still high, and living standards have not returned to
pre-recession levels