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  • Anforme Does it Matter if UK Households no longer save?

Anforme Does it Matter if UK Households no longer save?

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Nigel Watson, Head of Economics and Business Studies at St Catherine’s School, Bramley, Surrey, discusses the recent decline in the UK savings ratio and why Austrian economists regard the need for higher savings to finance more investment to help boost the rate of economic growth.

Summary of Key Points:

  • In search of short-run eco- nomic growth, the Bank of England has tried to encour- age consumption, rather than saving. Very low interest rates have encouraged speculation, asset bubbles, a huge trade deficit and record levels of household debt.
  • Investment, not consumption, is the key to creating meaning- ful rates of economic growth. Capital formation in the UK is restricted by a low savings ratio. British banks struggle to lend because they do not attract enough cash deposits from savers.
  • In the long-run the UK economy needs to save, invest and produce more, and bor- row, consume and import less.
  • Economic growth also depends upon the quality of the invest- ments made. For example, a £240,000 investment in a new machine should boost the economy’s productive capa- city. On the other hand, the same amount of money lent to a property speculator will leave the economy’s produc- tive capacity unchanged.

This article featured in ET Volume 18 Issue 4.

Nigel Watson, Head of Economics and Business Studies at St Catherine’s School, Bramley, Surrey, discusses the recent decline in the UK savings ratio and why Austrian economists regard the need for higher savings to finance more investment to help boost the rate of economic growth.

Summary of Key Points:

  • In search of short-run eco- nomic growth, the Bank of England has tried to encour- age consumption, rather than saving. Very low interest rates have encouraged speculation, asset bubbles, a huge trade deficit and record levels of household debt.
  • Investment, not consumption, is the key to creating meaning- ful rates of economic growth. Capital formation in the UK is restricted by a low savings ratio. British banks struggle to lend because they do not attract enough cash deposits from savers.
  • In the long-run the UK economy needs to save, invest and produce more, and bor- row, consume and import less.
  • Economic growth also depends upon the quality of the invest- ments made. For example, a £240,000 investment in a new machine should boost the economy’s productive capa- city. On the other hand, the same amount of money lent to a property speculator will leave the economy’s produc- tive capacity unchanged.

This article featured in ET Volume 18 Issue 4.

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