Micro-economics The Financial Times article d “Stagnation beckons for the UK” is about the state of consumer spending and other factors affecting the UK economy. The article Consumer spending is studied under Microeconomics by assessing the factors that affect how much people can and are able to spend in an economy. Consumer spending has a significant impact on the economic cycle. According to microeconomic theory, following are the factors that determine spending in any economy: 1. Disposable household income 2. Interest rates 3. Availability of credit 4. Consumer confidence 5. Changes in financial wealth of households 6.
Rate of employment According to the Financial Times article, the UK economy is facing two major issues that are causing a decrease in consumer spending. Firstly, UK’s internal rebalancing is causing havoc on everything from public spending to investments. Secondly is the weak external demand. The stagnant economy is a result of families choosing to payback their debts due to the economic environment. Couple this with stagnant wages and rising unemployment and they do not have a lot of money left to spend on anything else.
Therefore, they do not have any disposable income left. The article shows that there is no consumer spending in the current recession of 2011 and faults the consumer splurges in the 2000s for it. In 2011-12, consumer spending also remains low due to the rising unemployment and falling levels of household wealth. (McDermott, 2011) The article also compares percentage change in UK’s consumer spending to those of other countries for the years 2007 to 2011. It is the worse in UK after Ireland and Greece, two countries that have been badly hit by recession.
The consumer spending in Canada seems to have remained untouched by the current economic crises. The article clearly states that job losses and staggeringly high private debts are responsible for the fall in public spending. The exports and falling business investments will only worsen this situation in the future. The decline in British economy will continue for a few more years. (McDermott, 2011) Britain has managed to avoid recessions because of strong consumer spending. According to the FT article, consumer spending has remained flat through this recession despite the highest rate of exports ever and above average government spending.
It seems that during the current recession, public’s real wage and salary income has taken the biggest hit. Never before in any of the recessions since 1980 has income decreased by 4%. This alone suggests that the world is experiencing one of the worst recessions ever. The article also states that corporate liquidity and pension deposits are also going from bad to worse, as corporate lending is not happening at long-term fixed rates. Due to these factors, business investment will also grow weaker in the future.
(McDermott, 2011) Consumer spending is also dependent on consumer confidence, which is reliant on the state of economy at any given time. During the past few years, the consumer confidence was at the top, which lead to more consumer spending and thus more imported goods in British markets increasing the trade deficit. The article concludes by saying that sharper policy-making is required on the government’s behalf to counter to these issues. Works Cited McDermott, John. "“Stagnation beckons” for the UK. "Financial Times. 24 Oct 2011: n. page.
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