The UK economy remains highly unbalanced and the current recovery is not yet secured, UK Chancellor George Osborne said today while raising concerns about emerging markets' woes posing a threat to the global economy.
by Vladimir Harman
WBP Online correspondent in London
London - UK Chancellor George Osborne very clearly articulated the woes of the British economy during his speech in Hong Kong on Thursday.
“The recovery is not yet secure and our economy is still too unbalanced. We cannot rely on consumers alone for our economic growth, as we did in previous decades,” Osborne said in Hong Kong ahead of the G20 Finance ministers meeting this weekend in Australia.
“We cannot put all our chips on the success of the City of London. Britain is not investing enough. Britain is not exporting enough. Both business investment and exports are forecast to grow. But we can’t be passive observers of the forecasts. We need to roll up our sleeves, get to work and make it happen,” Osborne also said.
The Chancellor's statements reflect the concerns of many economists and economy forecasters who have been warning against the current pattern of the economic recovery being too dependent on debt-fueled household consumption and a robust and overpriced housing market.
Economists from the National Institute of Economic and Social Research (NIESR) warned in one of their recent studies that an unbalanced recovery driven primarily by consumer spending, especially if accompanied by rising house prices, is worrying from a long-term perspective. The NIESR also warned that in order to sustain the current pace of growth, Britain needs to rebalance its economy primarily by moving away from debt-driven domestic consumption towards more exports and production.
When speaking during the Inflation Report press conference on February 12, Bank of England Governor Mark Carney said "the recovery is neither balanced nor sustainable. A few quarters of above trend growth driven by household spending are a good start but they aren’t sufficient for sustained momentum.”
Osborne refuses Fed's policies feeding emerging markets' woes
While in Hong Kong, Osborne also raised concerns regarding the recent slow-down in emerging markets. Osborne also denied that Western monetary policies were the reason for emerging markets' woes.
“I can see that it is tempting for some to blame Western monetary policy for economic problems in some emerging markets, but this is neither accurate nor useful,” he said.
Regarding the Fed's policies, Osborne said: “The Fed does not and indeed should not set monetary policy to be appropriate for emerging markets – the Fed has a legal and democratic requirement to set monetary policy to be appropriate for the US economy.”
Osborne also argued that the underlying causes are domestic fragility in those countries adding to volatility “with currencies weakening by up to 19%, bond yields spiking by up to 11%, and sudden falls in equities markets across Latin America and Asia.”
“Together we need to act now to ensure that emerging market problems don’t contribute to a new crisis. How do we do that? By each one of us putting our own houses in order,” Osborne added.
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