Britain can appear to resolve underlying conflicts in the economy but in fact will only make the eventual adjustments sharper and more destabilising. ANDY KILMISTER explains.
n recent weeks tabloid newspaper
headlines have been threatening "ten
years of rising interest rates". The reason was a speech by Mervyn King, new governor of the Bank of England. King described the last decade of the British economy as the 'NICE (non-inflationary continuous expansion)' decade, and warned that the future was unlikely to be as nice as the past.
The resulting panic in the press is a clear sign of the underlying fragility of the UK
The immediate, most alarming problem for orthodox commentators on the UK economy is the rapid growth of debtfuelled consumption. Consumer debt has been rising at an annual rate of 14% and now stands at a record 120% of disposable income, up from 90% in 1997. Pensioners have been shamelessly ripped off by New Labour policies £10 billion greater for next year than ment will have to borrow this money, and this could push rates up. Current rises in commodity prices are another possible reason for a rise in inflation and interest ticularly large because borrowing has not been evenly distributed. have much greater debts relative to income than wealthy households. Also, debt is heavily concentrated in those households which have had to borrow heavily to buy houses in the wake of the property bubble.
Secondly, though, even if interest proportion of income. At some point, increased repayments will start to cut into spending, and if this feeds back through the economy as a generalised incomes and increasing the debt burden, then a downward spiral can result. This adware Ale