UK household debt reaches peak

www.bbc.co.uk/news/business-46780279

Article of the week – Harjot M.

High levels of household debt pose a risk to the economy because any increase in interest rates could lead to a sudden collapse in consumption. Higher borrowing costs mean households have less discretionary income resulting in a fall in consumer spending. Aware of this risk, firms may consider cutting investment in the expectation of a fall in future demand. Consequently, aggregate demand decreases causing a fall in inflationary pressures, a decrease in economic growth and, potentially, an increase in demand-deficient unemployment.

State of the UK Economy (November 2016) – YouTube

Essential viewing for AL students (also useful for IB). You are expected to be up to date with current UK economic performance and forecasts. Don’t forget to subscribe to the the T2U channel – many very useful video presentations.

UK inflation rate rises to 11-month high in December – BBC News

The UK’s inflation rate rises to an 11-month high in December, with a sharp rise in air fares offsetting falling food and clothing prices.

Source: UK inflation rate rises to 11-month high in December – BBC News

Article of the Week: Arsenii K.

 

State of the UK Economy in 2016 | Economics | tutor2u

What shape is the UK economy in as economics students prepare for their summer 2016 exams?

Source: State of the UK Economy in 2016 | Economics | tutor2u

Essential viewing for all AL students, also useful for IB students should they wish to use the UK for Paper 1 macro examples.

India 1 China 0?

Does the economic rise of India make it the country to watch instead of China?

There has been much talk of the BRICs [Brizil, Russia, India and China] and then the  MINTs [Mexico, Indonesia, Nigeria and Turkey] –  newly-industrialised countries which were going to be instrumental in driving the world economy. Of these, Russia and Brazil have suffered from slow growth and falling commodity prices and the MINTs also seem to have faded from the economic horizon and so only China and India remain.

Last month China’s growth fell and India’s GDP growth rate overtook it. Previously China had consistently outpaced India so that China’s average income per head which was approximately equal to India’s in the 1970s is now four times as high. Although the change in relative growth rates is currently more to do with a slowdown in China than an increase in India’s growth, the future is bright for the latter country. China is currently facing up to the need to look after a rapidly aging population while India has a much younger population and so will not face the burden of dealing with an aging population for some time.

UK economic growth reaches 0.5% but slowdown fears persist | Business | The Guardian

Business spending fell at sharpest pace for two years in final quarter, compounding anxiety about unstable recovery

Source: UK economic growth reaches 0.5% but slowdown fears persist | Business | The Guardian

 

L6th IB article of week – Harry M.

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The Balance of Payments

The UK deficit in goods reached a record last year at £125bn. Therefore, despite a services surplus of £90bn, the overall trade deficit was £35bn. This has been partly explained by the slow-down in China, since they are now buying fewer of our exports but more significantly, these record deficit figures reflect the competitiveness of the UK economy. Possibly, if one feels optimistic, one could argue that the recent fall in the value of sterling will make us more competitive and our exports will increase. However evidence about the price elasticity of demand for exports is not promising. Our invisible surplus has declined in recent years, largely because of the falling contribution from net overseas income (interest, profit and dividends which have fallen as interest rates have dropped and  earnings from dividends and profits have been hit by the recession).

We have had a current account deficit for over thirty years so does it matter? If a country has a deficit, it must either  use its reserves, sell assets or borrow  to pay for the deficit. Fortunately foreign banks and individuals are happy to purchase UK assets, buying shares and government securities, and investing directly in the UK. However what might happen if the UK economic position deteriorates, the currency weakens (possibly because of fears of a possible exit from the EU) and banks start to sell sterling?

Long Term Growth Prospects

As oil prices continue to fall, stock markets collapse and the world economic recovery falters, it is worth thinking occasionally about what is in store over the next thirty years rather than the next thirty months.

Some economists suggest that continuous, rapid world economic growth is a thing of the past since we will never again experience the waves of technological change which boosted growth over the last 150 years. In the late 19^th and early 20^th centuries life changed out of all recognition. The basic tasks of living, for example collecting water and washing clothes took much effort; speed and travel were totally different – journeys considered normal today, such as travelling from London to Birmingham or from London to New York were major expeditions. Communication  relied largely on the delivery of mail. It is difficult for us to understand how the gradual spread throughout the population of things today considered commonplace, such as the telephone, railways,  washing machines and the motor car transformed everyday living in developed countries.

Recently there has been concern that the world is not going to get the same positive external shocks from technology to boost economic growth that it has previously experienced. Some believe that information technology will provide the stimulus while others suggest that such things as driverless cars will provide less of a stimulus than the original invention of the car itself. To quote Peter Thiel, a major venture capitalist “We wanted flying cars but instead we got 140 characters”.

Possibly we should not be worrying about the long and focus on ensuring that the world does not head into another major recession. As Keynes said “In the long run, we are all dead.”

BBC News – Is Christmas getting cheaper?

Is Christmas getting more expensive or are we in for a bargain year? We look at the changing costs of food, drink and toys

Source: BBC News – Is Christmas getting cheaper?

I was a big fan of He Man in the mid 80’s, but it appears the action figures I pestered my parents to buy me for Christmas were not cheap. This great piece by the BBC illustrates perfectly the impact of inflation and the importance to convert prices into ‘real’ terms in order to make comparisons over time.