James Smith's picture
Affiliation: 
Head of Macroeconomic Policy, Resolution Foundation

Voting history

Levelling Up Productivity Gaps in the UK

Question 2: Which policies could best help reduce regional productivity disparities?

Answer:
Public or subsidized investment in lagging communities
Confidence level:
Not confident
Comment:
More investment in transport and communications infrastructure would reduce incentives for industries to cluster.

Question 1: What is the primary factor driving regional productivity disparities in the UK?

Answer:
Agglomeration Effects
Confidence level:
Not confident
Comment:
Lots of factors drive place-based outcomes. Services dominated economies, like the UK, benefit from agglomeration effects - meaning that some high value added industries concentrate in large cities (ie London). That said, there are many other factors that feed into the spatial distribution of productivity - many of which are accidents of history and past policies.

Prospects for UK Economic Growth

Question 2: What is the most important contribution economic policymakers can make growth in the UK over the next decade? 

Answer:
Ensuring high levels of aggregate demand
Confidence level:
Confident
Comment:
A key area in which policymakers have struggled since the financial crisis has been weak stabilisation policy. Since 2012, for example, monetary policy has become much less active (with the arguable exception of the pandemic) and fiscal policy has tightened despite a disappointing recovery (although was very active during the pandemic). Once we get past the high inflation of the next year or so, it will be important to ensure that both fiscal and monetary policy work in a complementary way to make sure the recovery from Covid-19 is complete and that policy is able to respond aggressively if the outlook deteriorates. There is also a case for policies which boost public investment, addressing some of the structural issues faced in the UK and 'crowding in' private investment.

Question 1: How do you see prospects for future (per capita) GDP growth in the UK in the next decade?

Answer:
Low growth because of weak demand
Confidence level:
Not confident
Comment:
There is obviously huge uncertainty about whether the pre-pandemic low growth, low interest rate environment will reassert itself. My worry in this context would be that the pandemic leaves us with lasting demand headwinds in the medium term (e.g. through planned tax rises or a deterioration in the terms of trade). The current bout of inflation complicates the response of macroeconomic policy makers to that. This is a recipe for a disappointing recovery and a continuation of the post financial crisis stagnation.

Surging Inflation in the UK

Question 2: Will the inflation surge of 2021 prove persistent?

Answer:
Yes
Confidence level:
Confident
Comment:
The current goods market shock will ease significantly through the course of this year but it will take time to fully pass through, and then feed through to non-tradables. So although I expect (UK) inflation to ease fairly rapidly later this year, the impact of the shock will take some time to subside completely. The question beyond that is the extent to which domestic inflationary pressures become apparent. With the labour market tightening we should see some pressure coming through but the extent is uncertain.

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