A concerted effort is needed to tackle the serious imbalances which sparked the UK’s legacy of debt and faltering growth, CBI Director-General John Cridland says today in his New Year message. While there are no quick fixes for the UK economy, this offers the best chance of securing a better, brighter future for all of us.
In its Vision for Rebalancing the Economy, the CBI sets out how by acting now, the UK can move away from its dependence on debt-driven household and Government spending and increase business investment and net trade.
Mr Cridland said: “2012 is going to be a hard road but if we are canny and act now to put in place solid economic foundations, we will be stronger and secure a better future for ourselves and our families.
“We need to identify how the UK will earn its living and pay its way in the years ahead and that means adjusting to change.
“The faltering recovery with family and business budgets under pressure and the on-going crisis in the Eurozone are stark reminders of the need to rebalance our economy away from household and government debt.
“There are no easy answers when it comes to securing future long-term growth. The hard graft of rebalancing is the only way it can be achieved, so it’s time to stop talking about it and get on with it.
“If we fail, the UK’s debts will continue to grow and our trend growth-rate will remain low. Only through rebalancing can we return growth to long-term sustainable levels.”
Mr Cridland said continuing weakness in the Eurozone still presents a significant threat to UK economic rebalancing as around 50% of the UK’s exports go to Europe. The risks include a worst-case scenario of a market default, or austerity measures having a negative impact on demand for foreign goods and services.
The CBI’s report makes clear that the unprecedented economic stability between 1993 and 2007 masked growing imbalances. The UK economy has become dominated by debt driven household and government consumption, which together accounted for 89% of GDP in 2009 – more than in France, Germany or the US.
To achieve sustainable growth in the medium-to-long term, the economy has to become more driven by investment and exports, while allowing the burdens of both Government and consumer debt to subside. Failing to rebalance alongside debt reduction would leave the economy struggling to grow.
Mr Cridland added: “To make up for the loss of public sector spending, the private sector needs to deliver £170 billion of new investment over the next five years, so it’s time to power-up and get on with rebalancing.
“The Government’s National Infrastructure Plan recognises the urgent need to make substantial investments to upgrade this country’s infrastructure, which will mainly come from the private sector, so there is a huge opportunity here for businesses.
“Companies can take advantage of the growing demand for services from the expanding middle class in emerging economies, particularly in healthcare, education, finance, transport and digital.
“Recent problems in the Eurozone have made our trade performance temporarily even worse, but for the medium-term we must now target new high-growth economies such as at the BRICs and others including Indonesia, Mexico and Turkey.
“By looking beyond our traditional horizons to focus on these high-growth countries we could give our exports a £20 billion boost by 2020.
“Rebalancing has to be the right answer for a stronger UK in the years ahead. Getting the pain over as quickly as possible through determined deficit reduction also makes sense.
“2012 may well be tough, but it will mark the beginning of a more prosperous future.”
