Britain, despite its relatively small size compared to most other countries, has the fifth highest death toll from coronavirus in the world, with more than 16,000 fatalities. The country has already recorded nearly 125,000 confirmed cases of the killer virus – the sixth highest only behind the US, Spain, Italy, France and Germany. Boris Johnson placed the UK into lockdown last month but this has seen firms close and thousands being forced out of business altogether under a mountain of lost trade and millions of lost jobs.
The Government has already made huge spending pledges amounting to hundreds of billions of pounds so far in a desperate attempt to protect the economy, workers, businesses and jobs.
Last week, Chancellor Rishi Sunak warned the UK economy could shrink by 35 percent in the April to June quarter, while the Institute for Economic Affairs warned Government borrowing could spiral to £300billion this year.
These dark warnings have led financial experts predicting Britain could collapse into a recession worse than that seen during the financial crisis in 2008, and possibly the deepest seen in more than a century.
But now a terrifying graph has intensified these fears, showing the disastrous position the UK will find itself in as it begins its economic recovery from the COVID-19 pandemic.
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The UK economy may already find itself in a dangerous position even before the recovery begins
Analysis from The Pound Campaign, comprising of a series of tables and graphs, “highlights the extent to which the imbalances and fragility of the UK economy are going to make recovery from the coronavirus pandemic more difficult for us than it could and should be”.
One of the graphs plots the exchange rate adjusted for inflation and changes in productivity covering China and the UK for the past four decades, but clearly shows how the UK has allowed the economy to “deindustrialise to the extent that we have”.
This illustrates how China has ensured its exchange rate has remained highly competitive between 1975 and 2017, while Britain has “pursued policies that have achieved exactly the opposite result”.
The Pound Exchange explained the reason the exchange rate is so important is that for average manufacturing operations, almost a third (30 percent) of total costs are for machinery, raw materials, and components, for which there are world prices.
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Two thirds of costs are then incurred in the pound to cover direct wages, salaries, expensive overhead costs, interest and taxation, adding the rate at which these costs are charged out to other countries is then almost entirely determined by the exchange rate.
But the graph shows that as far back as between 1977 and 1981, the exchange rate surged by around 70 percent from a relatively uncompetitive level it enjoyed before, “as a result of the policies pursued by the highly monetarist-influenced government of the time”.
The Pound Exchange said if 70 percent of this increase had to be reflected in export prices increases, the UK export prices also had to go up by 70 percent, “times another 70 percent (the proportion of total costs incurred in sterling) it comes to close to 50 percent”.
“The result in highly competitive world markets was all too predictable. No wonder that manufacturing as a percentage of UK GDP, which was nearly a third as late as 1970, has collapsed and is now barely 10 percent.”
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The Pound Exchange said all this is crucial in the UK’s ability to recover from the coronavirus crisis, but warned if the country’s economy continues on its current trajectory, the country’s position in the world will be “diminished.
The financial expert said: “If we continue with the exchange rate policies which we have pursued for the past 40 years, the underlying growth rate of UK GDP will continue to be no higher than its recent average of 1.4 percent.
“If COVID-19 reduces the size of our economy by, say, 10 percent, even after what is left of it has recovered, with as low a growth rate as barely one percent, our living standards will be no higher in 2030 than they were in 2019 – or even 2008.
“Our public services will be as stressed and underfunded as ever and our position in the world will be correspondingly diminished.”
The Pound Exchange suggested the UK should head for a “lower and more competitive exchange rate” that could possibly drive the underlying growth rate by two percent each year”.
The financial expert concluded: “We have devalued several times over the past few decades and inflation has not been a major problem, and nor should it be so again.
“Maybe we should use the coronavirus crisis as the trigger for resetting our economic policy goals to get our growth rate up to somewhere near the world long-term average, which is about 3.5 percent per annum.
“Recovery from COVID-19 would then be so much easier.”