Britain’s Economy Continues to Struggle

According to Reuters, Britain’s economy suffers from an unstable world market and lower consumer spending. Manufacturing capacity decreased as well, especially in major sectors of the economy. In light of the grim news, economists do not expect the Bank of England to raise interest rates in the short-term.

According to Reuters, Britain’s economy suffers from an unstable world market and lower consumer spending. Manufacturing capacity decreased as well, especially in major sectors of the economy. In light of the grim news, economists do not expect the Bank of England to raise interest rates in the short-term.

A weak manufacturing sector is no surprise, given that the United Kingdom diminished its industrial output in the same way as the United States. This leaves the country with a sputtering manufacturing base and the added burdens of weak job growth and stagnant wages. Britain recorded the strongest growth out of all G7 nations in 2013 and 2014, but underlying problems linger. Like other countries, Britain made the mistake of placing too much faith in the finance sector instead of structural reform and genuine economic growth.

More than Meets the Eye

On the surface, Britain has a track record of recovery, but one should measure the true state of the economy by living standards and real wage growth. The monthly purchasing manager’s index (PMI) gave a weaker assessment of the economy, showing that the overall expansion surged by 0.3 percent, which is Britain’s weakest growth in three years. However, the problem dates back to decades of misguided policies that led the U.K. on a dangerous course.

In addition, real wages have lowered to levels not seen since the recession began, and critics note the U.K.’s lack of macroeconomic growth that could have raised living standards and boosted consumer spending. Certain macroeconomic policies gave rise to GDP growth, but the missing link of boosting wages proved to be an impediment to economic success. Wages have grown at its fastest rate in six years, which could have led to the raising of interest rates by the BOE, but private surveys contradict the official report, and the central bank may be hesitant in shifting rates as the economy falters.

Labor Market Status

The job market is on shaky ground, especially as the oil industry contends with lower oil prices, prompting over 5,000 job losses in the North Sea since 2014. Further, a surging number of new graduates are accepting lower-paid positions, and the uptick in wage growth attributes more to low-paid jobs from a year ago, including adjustments to month-to-month wage growth. The poor condition of the labor market shows an economy that remains on troubled waters, as opposed to a resurgence of prosperity.