Despite sustainable economic growth, modest inflation, and low unemployment, the UK is facing a widening gap in income disparity, which threatens economic and political stability and requires new solutions from the government and central bankers.
Kristian Rouz — A new study by a Nobel-winning economist has found that the British economy is headed towards greater polarisation of disposable incomes across its societal strata, threatening hazardous wage stagnation for the less-educated workers and low-income households.
According to the report, written by Professor Sir Angus Deaton of Princeton University and commissioned by the Institute for Fiscal Studies, the UK is facing a multi-faceted set of economic challenges, stemming from the gradual reversal of globalisation, global trade tensions, and the accumulation of wealth in the hands of the top one percent of highest-earners.
Indeed, alarmist sentiments have crept and firmly entrenched themselves in the UK’s public debate on the economy. The Labour Party is pointing to the risks posed by Brexit, while right-wing populists suggest the offshoring of British industries and other globalisation challenges have made the average Briton poorer.”People really feel that not everybody is having a fair crack anymore”, Professor Deaton wrote.
The UK is not the only country facing such challenges. Erosion of economic prosperity is a common problem facing advanced economies — and while Prime Minister Theresa May is promising an economy that works for all, many feel that the positive GDP and unemployment figures hardly work for anyone at all.
“I think that people getting rich is a good thing, especially when it brings prosperity to others”, Sir Angus said. “But the other kind of getting rich, ‘taking’ rather than ‘making’, rent-seeking rather than creating, enriching the few at the expense of the many, taking the free out of free markets, is making a mockery of democracy”.
In this light, Downing Street and the Bank of England (BOE) are facing a puzzle of how to boost disposable incomes and bring down the costs of living, while also ensuring stable inflation and GDP growth. So far, British officials have considered redistributive policies — which some argue don’t work, highlighting the urgent need for a brand new approach to fiscal and monetary policies.