News

UK needs foreign support to boost economy, expert says

(22 April 2009)

Tony Cleaver

Plans announced in the Budget to lift the UK out of recession will not work in isolation, a Durham University economics expert said.

Tony Cleaver, Senior Teaching Fellow in Economics at Durham Business School, said other countries, particularly in Europe, also needed to introduce incentives that would benefit British exports and boost the UK economy. And he added that a fear of debt and unemployment could see people remain cautious with their money, despite the introduction of measures to stimulate spending in sectors such as the motor industry. Mr Cleaver said “We can expect opposition politicians to cry out that the Government’s finances are in a mess but the only important question is: Will the Budget help lift the country out of the recession? “The answer to this is not entirely in the Government’s hands since the UK is tied, though international trade, into markets in Europe and North America. “For example, most of the cars produced in Britain are exported and most of the cars consumed in Britain are imported, hence the importance of other countries stimulating their economies and not placing barriers to trade. If UK consumers increase their purchases of cars, thanks to the new trade-in subsidies, this will benefit European industry more than our own. “We are therefore dependent on reciprocal deals being followed through in Europe that will benefit British exporters. “Germany has already put in place its own successful trade-in scheme – others should do likewise.” Mr Cleaver added: “The biggest obstacle to overcome in the UK is the high level of consumer indebtedness, built up over a decade or more of excessive spending. People are worried about debt and unemployment and are unlikely to return to spending very soon. Since the biggest items of expenditure for most people are houses and cars we can expect that these markets will take a long time to recover, no matter what official inducements are offered. “We are living through the steepest decline in economic activity for a lifetime and the recovery will be slow. Some reasons for optimism have been apparent in recent spending figures but the fear is that the expected recovery may turn into a ‘double dip’ - hence the importance of sustaining a consistent Government presence in aggregate spending. “So long as the private sector is not spending, the public sector must. “Alistair Darling has no option but to plunge the Government’s Budget into the red for now and hope that in time this will be repaid as consumer spending and incomes eventually return to high levels.”