To think the UK economy is utterly broken…

[Paul2023]

Things were never the same after the crash of 2007/2008. Austerity was imposed with the Conservatives in 2010 and things never really recovered after that.

Of course we had Brexit and the pandemic.

We’ve had best part of 15 years of cuts to public services, of which we saw services decimated. We’re now seeing the results.

The Bank of England continues to raise interest rates, yet inflation still ain’t coming down fast enough. Yet, most people with mortgages and who privately rent ( which is most of the population) will be poorer as a result of this.

I think the county is in denial. The economy is in a poor state and I don’t think anyone in government ( who ever it is) has the answer. It’s just a case of sticking plasters over the wounds to fight another day.

Here’s an email a poster got from his father , from another forum I’m on;

“I hate to be the bearer of bad news, but someone must point out the grim truth facing the UK; we're going bust.

The UK has just hit a new and totally unwanted milestone, as the country now owes more money than its entire economy is worth - and it’s only going to grow as government borrowing continues to soar. The UK is particularly vulnerable because much of our debt is linked to inflation, and the cost of it rises with prices. Inflation is not stabilising because of wage demands, pension and supply chain increases.

It's a major symbolic moment but one that is in danger of getting lost, as the cost-of-living crisis rages unchecked

and homeowners panic over how they're going to pay their soaring mortgage bills.

The government continues to spend a lot more than the nation collectively earns, forcing it to fund everyday spending by borrowing money.

Taxes may be at a 70-year high – and set to rise even higher – but it's still not enough. As the nation gets sicker and older, the shortfall will grow.

We’re a nation in denial. So are France, Italy and even the US, but that doesn't make it right!”

Im just so scared for the future of our kids that I really can’t see how things will ever really get better. There’s going to be a bigger population of older people and less people paying tax. It explains why the government is so keen to get older people back into work!

Does anyone else really worry about the state of the UK?

No, l don’t.

It was crap in the 90’s, crap for a lot of the 80’s and 70’s. We only finished paying back the loans for WW2 in 2006. It’s crap at the moment. But it’s cyclical. The country is always in debt. But that’s how it is

The U.K. was 3 days away from famine in 1948. We’re not there.

No I don't either. You are always going to have the younger generation struggling with mortgages, rent etc. Me and my husband are in our 50s, mortgage paid, children left home, no debts. We are at a time in our lives where we can afford to spend without having to worry, but 20/30 years ago we were in exactly the same situation as younger people are now.

It’s worse in France, I gather from friends who live there.

Eventually the country (any country) will default on its debt and effectively go bankrupt. Our system is based on borrowing and spending beyond our means. Our alternatives are to keep borrowing until we go bust or make decisions that are incompatible with our present human rights obligations - things like a cull of unproductive citizens, forced labour, the death penalty for relatively minor crimes, and things that presently most people will find unpalatable.

Countries going bust isn't anything new. Regimes change. On an individual level the concept of inherited debt is not accepted - I can't borrow a shitload of money and assign the debt to a "beneficiary" in my will. It's odd that on a country level we have a different standard, as a PP said we only recently paid off the debt from WW2 and someone who voted for a government that accrued that debt must have been born 1914 at the latest (voting age in 1935 election was 21, there wasn't another election until after the war).

I think similar is happening everywhere. Lots of young people struggle with mortgages, rising living costs, lack of funded childcare etc. It's not only the UK.

The way the economy is behaving is certainly indicative of one which is in a much worse state than a lot of other western economies. The spike in inflation was to be expected but whereas other countries have raised interest rates and seen inflation drop just about as quickly as it went up, the UK is not, and that is indicative of a fundamentally weakened economy cough brexit cough.

Plus, the bank of england are hell bent on pushing interest rates up when it's not nearly as effective a tool as it used to be. Something like 80% of people are not on fixed rates, sensibly so due to the cost of them being so low in recent times.

This means that raising interest rates doesn't actually hurt a lot of people, at least in the short or medium term which is what is needed to bring inflation down to discourage spending. In fact, what a lot of people have done is stop overpaying their mortgages and have been putting more money into savings to take advantage of increased rates, meaning they are actually benefiting from rate rises.

The BoE need to take a pause from it and let the rise take effect as more people each month come off fixed rates. If they go too high all they do is fuel inflation and harm the economy more as more people come off fixed rates and find their payments significantly higher.

*Something like 80% of people are not on fixed rates

We won’t let people starve , or things won’t be like it was in the 1940s.
But economically I don’t think we’ll go back to how things were.

The government borrows more to pay for things. Yet to get this money back they need to tax people. But public servants who are payed for by taxes, also need pay rises to keep up with living costs. Which in turn takes more government money.

There’s going to be lots more older , retired people in the coming decades and less people of working age to fund this. How can they really fund this ?

And by putting interest rates up surely takes money out of the economy? People have less expendable income to go
to restaurants, pubs, leisure, days out etc?

And hasn’t it shown it’s not working anyway? Yet the Bank of England will just continue raising them.

Interest rates were relatively stable from the mid 90s until the crash. They ranged from 5-7%. But house prices were lower.

The problem is interest rates are heading that way but property prices are a lot more than in the early 2000s. So people have bigger debts.

Yes an economist (ex BoE I think) said the same. The model is out of date because many more are on fixed rate mortgages

It hits a few hard but most people are immune to the rate rise

Our alternatives are to keep borrowing until we go bust or make decisions that are incompatible with our present human rights obligations - things like a cull of unproductive citizens, forced labour, the death penalty for relatively minor crimes, and things that presently most people will find unpalatable

🤔A cull on unproductive citizens? I think everyone would find that unpalatable tbh

Putting up interest rates will induce a recession. That’s the idea. As the lovely John Major said ‘If it isn’t hurting, it isn’t working’ They don’t give a shit about normal people.

The other thing is though these measures are meant to cause financial pain, that’s how they work.

No one wants that, some politicians then say we’ll take away that hardship. It’s not a solution either

Then recession is awful, for those who remember and were impacted by 2008 and earlier. That hit so many around us, redundancies especially and house loss

have been putting more money into savings to take advantage of increased rates, meaning they are actually benefiting from rate rises

My savings aren’t benefitting from rate rises.

The problem is we have a General Election next year so the government are delaying taking action so the next lot can be blamed.
The BoE only have control over the interest rates. They can't use other measures to try and control things

Sovereign countries whose debt is denominated in their own fiat currency can’t default on their debt. The U.K. will always be able to pay its debt as that debt is in Sterling. Devaluation and inflation are a given, but default is not on the cards.

The BOE is charged with controlling inflation - it must act. Interest rates are it only option

However the causes of this problem are not those that can be easily fixed by higher interest rates

The government - who to my mind has yet again ensured that the uk is doing worse than comparable counties - have abdicated responsibility

So we see higher problems from fuel prices as the government did less to protect us than others
We see higher problems from a reduced work force because the government wanted hard brexit
I could go on

I would agree that no political party seems t**o have a plan on what to do next.

The economy is fundamentally unbalanced. It's got this way through two decades of government mismanagement and membership of the EU.

It needs to rebalance and look for growth/opportunity elsewhere. The key problems are :

i) We have become a nation of takers, dependent on the state. We need to incentivise work and bring more people out of the welfare system into work. This is going to be painful, but the good news is that the jobs and opportunities are there. The only way it can really be achieved is by lowering benefits.

ii) We are a nation where speculation on assets is rewarded over productive work. Taxation needs to be realigned so that taxation on speculation is equal to or greater than that of taxation on income.

iii) The economy has become too dependent on ever rising house prices and borrowing. We need prices to fall 50% in order to make housing more affordable for all and we need to take a more responsible approach to credit.

iv) We need to look outside our traditional business areas for new opportunities. There is little growth to be had in trading with our traditional partners like the US and EU, so we need to look elsewhere.

The bad news is that the realignment (which will happen whether anyone likes it or not) is going to be hard work. The good news is that it can be done and there are plenty of opportunities for those that want to do it. The jobs are there. The opportunities are there. The question is whether people will move into them willingly, or need more persuasion.

@3dogsandarabbit this is not true, me and my husband are almost 40… we are still renting (have given up trying to buy a house) we have no savings etc as all our money goes on bills, food and childcare. I cannot see how we would be mortgage free and have money to spend but the time we are in our 50s. We haven’t been on holiday for 6 years. We are both highly educated with degrees etc. my mum was a cleaner with no qualifications and bought her house cheap £25,000 and then made a massive profit to buy another property and was financially stable in her late 40/50s.
It’s a completely different ball game now.

This. This will be the fourth recession in my life time and we survive. I feel desperately sorry for young people because they’ve been well and truly shafted in a whole variety of ways.

25 years of quantitative easing is over. I have seen different forms of economic cycles over a long life compared to many. There are numerous factors in play, but it is important not to make predictions just on the past - they need to be placed into a modern context.

Many countries are teetering on bankruptcy. These are invariably western democracies. We got by in the past thanks to globalisation and exploitation. These are tenets of capitalism. The challenge now is that we cannot continue as we have done for the last couple of decades because globalisation is shrinking. We may now have two economic worlds and systems within which we operate.

In the UK we have a lot of freebies. We just cannot afford those anymore without taxes going up considerably. We cannot borrow anymore. We owe £2,300,000,000,000 which is about £90,000 per household. Our interest bill alone is £100bn+ a year and rising.

We cannot prop up economies and asset prices anymore. What is coming will devalue assets by a third and that is being conservative.

What follows is even more uncertain. We may or may not have democratic liberal economies anymore.

Who would realistically want to be in power for the next 10 years?

Anyone have any answers?
The problem with economists is they all have different views on it.
I agree that being in opposition must be preferred to actually having to deal with any of this.

Then shop around. Savings accounts have seen decent bumps in rates over the last year.