Conclusions – UK Economy Under Labour

The UK economy has had a fairly smooth passage over the time that this Labour government has been in power. This has allowed them to fulfil most of their economic objectives, which is an extremely difficult task to achieve simultaneously.

Global stability has been a great help to the economy, and a lack of external shocks has led to a sustained period of economic growth, low inflation and low unemployment. With high levels of consumer spending and increased outsourcing for cheaper products in a global market place, the balance of payments situation has deteriorated significantly.

However, the strength of the past decade appears likely to be ending. A series of external shocks in commodity prices, plus the increased rates of borrowing on record levels personal and government of debt are damaging the good record that has been achieved.

Slower consumer and business spending means that growth has stalled. With falls in confidence in the economy, and the credit crunch rising the price of money to borrow for spending or investment, businesses are not producing goods and services as there is not the demand to buy them. Our growth period has been built on spending and credit, often with our evermore valuable homes as collateral. House prices are now falling and credit very expensive to obtain; meaning consumer spending has been quickly extinguished.


This, in turn, means people are becoming unemployed as businesses increase in laying-off staff and less money is entering the Circular Flow of Income. This is likely to create a downward multiplier effect of even less spending and consumption.

Also, input prices on commodities and raw materials have risen to very high levels, making manufacturing more expensive, and rising fuel and utility bills are taking increasing proportions of both home’s and business’ incomes. These rises are causing cost-push inflation, and increased wage bargaining although this is yet to become a full, problematic wage-price spiral.

The major issue is that little can be done to boost the stagnant growth and inflationary factors in the economy; as the possible remedy for one can have an undesirable effect on the other (although even the usual ‘remedies’ are beginning to appear ineffective at all). A period of ‘stagflation’ looks likely, where there is little if any growth and high levels of inflation.

Recent changes have come at the end of a period of increased global prosperity, where many positive indicators have come together to give strong economic conditions. But now, the spending has had to slow and reckless decisions made in the light of the boom times are causing real problems in the economy, especially in the banking and finance sectors.

For the immediate future, growth shows little sign of returning and inflation is likely to be high. While commodity prices, such as oil, have fallen back dramatically, the effects of higher prices are already in the economy and the continued pressure of higher credit repayment charges will be squeezing many governments, businesses and households.

The government successfully achieved most of its economic objectives, over a long and sustained period; certainly more successfully that previous government’s have managed. The simultaneous accomplishment of many objectives together is very difficult, as theories like the Phillips Curve show, but this Labour government has, largely, managed to do so.

But these times are coming to an end, with all indicators heading in an undesirable direction. Many would now say the government needed to do little over the past decade and has simply been lucky to preside over a strong period. Now, however, times are strained and there is the risk that reckless spending and a lack of saving is to be the economy’s downfall.

The government has acted against the crisis, in a response which has sparked many other world economies to follow with similar plans. But their intervention is perhaps too little too late, with stocks, employment, lending and inflation all failing to improve.

Their economic stewardship has been very successful in the ‘boom times’, but the recent downturn has exposed serious flaws in the economy; at least some of which can be blamed upon the government and its authorities.

Please note that this was written during Summer 2008, before the worst of the economic problems of the following months