U.K.’s economic variables over the last decade in the context of the current corona crisis

De Koning, Kees (2020): U.K.’s economic variables over the last decade in the context of the current corona crisis.

Abstract

In January 2007, U.K. Government debt to GDP stood at 32.5%. By December 2019 it had grown to 89.5% and the latest data from September 2020 show a government debt level of just over £2 trillion, while its debt to GDP level did increase to 103.5%.

The Quantitative Easing program by the Bank of England started in November 2009 with a purchase of £200 billion U.K. gilts. The amounts were increased to £375 billion in July 2012; further to £435 billion by August 2016; to £645 by March 2020 and finally (so far) to £745 billion by June 2020.

The current Bank’s base rate is 0.1% and discussions are ongoing about the desirability of introducing a negative base rate in future.

The U.K. households’ main net wealth items were and are: private pensions and property wealth. Over the period July 2006-June 2008, property wealth was assessed at £3.537 trillion and private pension wealth at £2.886 trillion. By the period April 2016-March 2018 net property wealth had grown to £5.09 trillion and private pension wealth to £6.10 trillion. These items -together at £11.19 trillion- can be compared with the U.K.’s GDP of 2018 of £2.144 trillion. They show a multiple of 5.2 times GDP. If one includes individual households’ financial wealth of £2.12 trillion in 2018, the multiple increases to 6.2 times GDP.

The above data show that collective and individual savings far outweigh GDP levels; in its most extreme case by more than 6 times. This raises the question why not more use is made of such savings. After all, U.K. government expenditure as a share of GDP “only” amounted to 39.4% in fiscal year 2018 to 2019.

One element that will be explored in this paper is the difference between a profit or loss to a household or a company –an income gain or loss now or in the future- and a collective loss or gain. The first one represents the usual principles of profits; the second one can be defined as a country’s gain or loss: country profit. The two types of profit often do not overlap.

This paper has as an objective to show that there are ways in which existing savings can be used to stimulate economic growth, without having to rely on increasing government debt levels. Government debt represents a future loss to all households directly or indirectly through companies.

• Item Type: MPRA Paper
• Language: English
• Keywords: U.K. government debt; Quantitative Easing; Bank of England base rate; U.K households' net wealth; pension savings and home equity; country profit
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; D - Microeconomics > D4 - Market Structure, Pricing, and Design; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes

References

References

Office for National Statistics, London, U.K. International Trade Statistics; https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/timeseries/d28l/pnbp

Office for National Statistics, London, U.K.; Number of households in the U.K. https://www.gov.uk/government/statistics/families-and-households-in-the-uk-2019

Bank of England, London, U.K. Bank base interest rate, https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate

Office for National Statistics. London. U.K. consumer price inflation data; https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/september2020#cpih-12-month-inflation-rate

Trading Economics; New York City, New York; United Kingdom, home ownership rate https://tradingeconomics.com/united-kingdom/home-ownership-rate

Office for National Statistics, London, U.K.; U.K. house price index; https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/internationalmigration/articles/housingandhomeownershipintheuk/2015-01-22

The Times Newspaper London, U.K., Plunging valuations fuel house price fears; October 18, 2020; https://www.thetimes.co.uk/edition/news/will-house-prices-crash-plunging-valuations-fuel-fears-6kzglptwn

De Koning, Kees; 2020, MPRA Paper 101878; Savings, the least understood economic concept; https://mpra.ub.uni-muenchen.de/101878/