Thursday, July 17, 2008

Britain's Fragile Economy

Matthew Lynn has a very interesting column about why Britain's economic fundamentals are very weak and why the economy faces a significant downturn. He names four factors: The tax increases implemented by the Labour government has eroded British competitiveness, the high budget deficit which will disable it from cutting taxes, the too low level of savings and too high level of debt and the policy of increasing the dependency on financial services and reducing the dependency on oil production (the latter might have been good during other time periods, but with the financial downturn and skyhigh oil prices, it is not good now).

And with inflation being significantly above the 2% target, the Bank of England has no room to reduce interest rates further.


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