Macroeconomics: UK economy, IB Economics

A brief look at the UK economy - with Hazel Sheffield suggesting that yesterday's OECD economic forecast is going to puncture the Prime Minister's narrative that the UK economy is recovering.

The OECD is of the view that a number of developed economies, including the UK risk tipping into recession if their central banks maintain tight monetary policy for too long, although it has revised up its growth forecast for this year. 

The economy predicted to be the worst performing? Germany, which the OECD sees as experiencing -0.1% growth this year and only 0.6% growth in 2024. 

IPPR North have revealed the extent to which the North of England lags behind not only the South-East but most of the developed world in terms of investment. 

Only Greece has a lower level of public and private investment than the North. Levelling up anyone? 

The OECD has a pretty dim view of the immediate prospects for the UK economy, with 3.6% growth this year - and most people think this is optimistic - and 0% growth in 2023, the lowest among G7 nations. The organisation isn't always right by any means but it's a portent of things to come. 

Interesting policy announcment by the OECD: governments should avoid spending cuts and tax rises as they look to recover from the coronavirus pandemic. 

For Year 13 students in the second year of their course, this should be relatively straightforward to explain, in terms of AD-AS analysis, and it might be a good time to reflect upon the nature of austerity and whether or not it was an appropriate policy after the global financial crisis.

For Year 12 students, it might be a chance to introduce discussions of how the government can influence economic activity and draw a clear distinction between fiscal and monetary policy. 

The next round of any trade war could involve tariffs on EU/UK cars, if European nations impose a digital sales tax on big tech companies. 

Despite the head of the OECD, Angel Guerria, trying to co-ordinate a global tax, France and the UK seem adamant that intervention is necessary. The Americans, via Treasury Secretary, on the other hand, are keen to depict such a tax as "arbitrary" - which in all fairness is probably how he, and his lawyers/accountants see most of the income tax he pays. 

The problem is that without a co-ordinated approach it seems inevitable that some loopholes are going to emerge and there's certainly a case for some nations courting the tech giants and no taxing them in the name of job creation. 

Most people would agree that the tech giants don't pay the appropriate amount of tax; adding a tariff to US car imports isn't going to tackle that, or improve economic welfare. It's simply going to make negotiations more complex. 

This is a fascinating look at the way unemployment is calculated with the OECD and Centre fro Cities claiming that unemployment data isn't accurately capturing the number of people unemployed. They argue that if you factor in so-called 'adjusted economic activity rates' some cities have a 'true' unemployment rate of three to four times the stated figure.

Of course, in the official data, these people are classed as economically inactive, but many of them would claim that their inactivity stems from a lack of jobs and that if there genuinely were jobs available, they would be economically active.

It's a reminder that when measuring unemployment, it's also worth thinking about related concepts such as the level of economic inactivity - and the causes of inactivity - and concepts such as 'underemployment'. Both of these create greater awareness of the true extent to which there is spare employment capacity.

One of the trendiest current economic ideas is that of a universal basic income. Advocates of it argue that it provides a more effective social safety net than existing benefits and this might encourage greater labour market flexibility.

However, this people are going to be disappointed by the news that a Finnish experiment which paid 2,000 unemployed Finns a universal basic income will not be expanded. The government has concluded that it hasn't worked, in line with the OECD view that a system of Universal Credit, such as that in the UK is better.

The moribund state of the UK economy is expected to extend into 2025, with the OECD forecasting UK growth of 1.0%, after 0.4% growth this year. It's believed that interest rates are going to stay higher for longer, meaning that of the G7 nations, only Germany is forecast to experience lower growth.

The Institute for Public Policy arguably sums up the last 40 years: £500bn plus under-investment has resulted in low growth. It argues that British investment is the lowest in the G7 and 27th out of 30 in the OECD, ahead of only Poland, Luxembourg and Greece. 

The solution? The IPPR argues that the government should be looking for public investment to "crowd in" private sector investment, giving confidence to companies investing in the UK. That said, is there much evidence for this? 

Watch Conservative politicians banging the "They've always been wrong before..." drum in the media over the next 24 hours. I'm amazed that those people likely to say that ever look in mirrors; lacking a soul they're unlikely to see a reflection.

However, welcome to the grim reality of the next couple of years - the biggest recession since records began. That said, the size of the difference in the OECD and OBR forecast is interesting and would make for a fascinating ToK session. 

The OECD is forecasting a quicker than expected UK recovery, after, it has to be said, a far deeper than expected recession. 

The OECD paints a bleak picture of Britain's economic prospects - a fall in growth to 1%, even if a no-deal Brexit is avoided, with even slower growth in the event of no deal.

Factor in all the other headwinds, and it seems that we're in for a period of stagnation, which has all sorts of consequences not least for public spending.  

The latest OECD report on the state of the UK highlights a lack of investment in infrastructure - and argues that this has depressed growth, and productivity. 

That said, there are a number of areas where the UK has done well - in reforming pensions and product markets.