Global economic slowdowns are prompting urgent policy responses across multiple countries as they grapple with the consequences of rising inflation and stagnant growth. Notably, the United Kingdom and China are taking steps to solidify their economic positions amid these challenges.
According to the Resolution Foundation, household incomes are expected to stagnate or even fall next year. Chancellor Rachel Reeves hopes to offset this decline through improvements in public services, positing these enhancements as necessary for alleviating pressures on the most vulnerable populations. The Foundation’s research indicates the worst-off decile of working-age individuals could experience a 2% dip in disposable income yet gain £28 overall when factored against benefits from public services.
Mike Brewer, interim chief executive of the Resolution Foundation, stated, “While people may not be besser off in purely financial terms, they will feel besser off if we can have bessere, less dysfunctional public services.” His comments highlight the balancing act the government must perform to stimulate growth and satisfaction among citizens when basic financial metrics might suggest otherwise.
The economic outlook appears bleak, with the UK experiencing its first GDP contraction of two consecutive monthly declines since the pandemic’s onset. The latest figures from the Office for National Statistics reported the economy shrinking by 0.1% both in September and October. Some economists express concerns about potential recession as the Bank of England predicts zero growth during the last quarter of this year.
Looking farther out, the Office for Budget Responsibility anticipates 2% GDP growth by 2025, but recent forecasts from independent analysts suggest growth could be as low as 1.3%. Carl Emmerson from the Institute for Fiscal Studies pointed to this uncertainty, stating, “The very big challenge is going to be the spending review because [Reeves has] confirmed the allocations for the current year.” He commented on the limitations within which Reeves operates, emphasizing the tough conditions projected beyond 2025, particularly as public services demand increased funding amid tighter fiscal targets.
The spending review slated for next June poses additional hurdles for treasury management; departments will be expected to make 5% cuts amid rising requests for extra spending on public services stressed by both inflation and increased demand. Emmerson added, “You've got so many competing needs for more spending,” spotlighting the difficulty of crafting budgets without prioritizing areas for growth effectively.
Meanwhile, the economic situation is similarly tense across the globe. China's industrial profits have been fluctuated leading to decreased spending and investment. November’s data shows industrial profits dipped by 7.3% year-on-year following a 10% drop the previous month. This decline points to the broader, faltering economic recovery as policymakers pledge more extensive support measures to bolster consumption and investment.
Despite the slowdown, there were mixed signals concerning economic activity. Industrial output rose slightly, and newly built home prices fell at the slowest pace seen over 17 months, indicating some potential stabilization. China's governmental leaders have committed to stimulating the economy by rising deficits, increasing debt issuance, and boosting direct fiscal support to consumers.
The National Bureau of Statistics' reports revealed substantial pain across various sectors, with state-owned firms experiencing the most significant fall — 8.4% year-on-year profits shrinking. Domestic economic managers are working to mitigate the risks posed by renewed trade difficulties, particularly with the incoming U.S. administration of President-elect Donald Trump.
China has indicated plans to issue record-breaking treasury bonds next year valued at $411 billion, reflecting the government’s commitment to unite policy efforts for stabilizing its economic footing. This pledge, alongside strategies involving liquidity enhancements, is intended to create more favorable conditions for consumer spending and business investments.
Both the UK and China are emblematic of the broader challenges governments face globally. The concerted efforts to adjust fiscal strategies indicate recognition of the changing economic environment and the necessity for effective policymaking. A Treasury spokesperson articulated this challenge succinctly, remarking, “The challenge we face to fix our economy and properly fund our public finances after 15 years of neglect is huge.” According to them, implementing sustainable long-term growth is the key to shifting the current negative trajectories.
With tensions compounded by global economic dynamics, the road to recovery presents significant uncertainties but also political opportunities for leaders committed to transforming their national conditions effectively.
