Should You Be Getting Depressed about the State of the UK Economy?

by Kyle Taylor on January 21, 2014

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Let’s face it; it’s been a crazy couple of years, as far as the UK economy is concerned. Just when we were beginning to become resigned to the fact that we would be stuck in the economic doldrums that were brought on by the recession that started in 2008, springtime, economically speaking seemed to be on the horizon the autumn just been. The economy was beginning to expand, and certain key sectors, such as car sales and property purchases, showed marked increases, the best in many years.

Many economists also expected this past Christmas season to be an important one for retailers. They were assuming that consumers, buoyed by some cheery news last summer, would provide retailers with an excellent Christmas season. However, post Christmas saw a significant slump of out and about high street visitors. Mind you, consumer spending contributes only a little more than 5% to the overall UK economy. With a report that was released on December 20, we received more bad news.

That Pesky Trade Deficit

A country’s trade deficit defines how much merchandise is produced and exported out of country, as compared to how much is imported. For many economists, it is a measure of the overall economic health of a nation. Countries like China, who produce a tremendous amount of goods for a global market, have a positive trade balance. That means they export far more than they import, receiving valuable foreign currency, creating jobs and allowing the country to achieve a certain measure of economic well-being. But this latest report on the UK paints a far different picture. According to the Office of National Statistics, which measures these sorts of things, the UK trade deficit in the last quarter of 2013 more than doubled, mushrooming from £6 billion to £21 billion. That, my friends is a huge jump. To put it in perspective, this trade deficit represents more than 5% of the country’s entire Gross Domestic Product, otherwise known as the GDP. This percentage is so big, that it is the largest recorded since 1989. Chances are, George Osborne isn’t sleeping very well.

The Importance of Manufacturing

Let’s face it, since the beginning of the Industrial Revolution, one of the strengths of the UK economy has always been manufacturing. It not only provides a lot of jobs, but it produces goods that can then be either consumed in the local market, or exported to other parts of the world. Relying on consumer spending to drive growth is not a wise monetary policy. The United States learned this lesson the hard way, when their inflated housing market collapsed back in 2007. In many ways, they too are trying to reestablish their manufacturing base, which had been decimated by overseas competitors. The fact that both Motorola and Apple are beginning to produce mobile devices in the US is a sign that honest attempts are being made to address the situation. It can only be hoped that the UK will find a way to boost its manufacturing sector, which will help rebalance the economy as the Chancellor would like, as well as reduce the ballooning trade deficit.

Making Your Own Contribution

While you certainly cannot solve all of the UK economic problems by yourself, you can certainly take steps to improve your own personal situation. One of the smartest strategies that you can adopt is to open up your own cash ISAs, which are tax-free and allow for some excellent returns; a small step for you but a positive step for the entire country.

 

Image courtesy of: freedigitalphotos.netDavid Castillo Dominici

 

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