looks at the latest evidence on the state of the British HE MOST recent T economic figures show clearly that despite government and employer rhetoric the underlying problems of British remain unsolved.
The annual inflation rate currently stands at 4%. This is higher than any other of the rich industrialised countries; about three times the level in the USA, France and Germany and double that in Japan. Wages growth is also higher in Britain than in comparable countries and is accelerating.
As a result the Deputy Governor of the Bank of England has talked of the possibility of a further rise in interest ralco, although the rate of growth is slowing sharply and manufacturing output is hardly growing at all. Indeed, the last three months actually saw a decline in British industrial production compared to the previous quarter, while comparable production in Germany, France and Spain grew strongly. The relative calm of the British Union tends to express workers' quite strong export growth as sectors of the world economy boomed. Now exports are dropping back dramatically, to a large extent because of the crisis in Asia. Weak investment over the last five i years means that the economy is now operating close to full capacity. While the level of industrial action remains low, falling unemployment has given private sector workers some confidence to demand higher wages and has meant that employers have been prepared to make some concessions.
The main reason that this has not fed into higher inflation levels earlier has been the very high exceptions for Denmark on four level of the pound, which has kept import prices low.
In the last few weeks the pound has fallen - and this has translated directly into an increase in the inflation rate.
But at the same time the interest rate rises which have already occurred are hitting investment, while leaving consumer spending relatively unchanged as incomes rise for some - and as those who live on interest income (mainly the wealthier section of elderly people) benefit.
With consumer spending still growing fast and investment stagnating, the trade deficit has opened up quickly.
A recent Over the last year, Britain ran the report showed biggest trade much of British deficit in the industry with European Union, at over £15 bil- productivity levels lion, with only well below other Spain coming close. EU countries The British economy continued to depend on the earnings of the City of London and on investments abroad, to meet this gap. Yet many of those investments are located in just those East Asian regions now facing economic crisis.
Faced with the possibility of increasing inflation and a growing trade deficit, the government and the Bank of England are moving towards slowing the However, since it is Included in economy down. But with manufacturing so weak this risks tipping the whole system into recession. And such a recession would not guarantee a reduction in inflation if the pound continues to fall. The root cause of the economic dilemmas New Labour faces lies in the persistent weakness of large sections of British capital. For all Blair's talk about the virtues of flexible labour markets in Britain a recent report by the National Institute of Economic and Social Research painted a picture of large sections of British industry with productivity levels well down on other EU countries, notably Germany. This situation, primarily the legacy of long years of low investment, leaves the British economy chronically vulnerable to cycles and instability.
The last six years represent one of many attempts by both Tory and Labour politicians to argue that such instability has been eliminated and that capitalism can ensure unlimited crisis free growth.
The events of the last few months indicate that this period is drawing to a close and that the next few years are likely to be considerably more turbulent. quences of a "no" majority