Andrew Sentance

International dimensions of climate change

Much of the government thinking and action on climate change, in the UK and elsewhere, is focused on national impacts in terms of either mitigating the national contribution to GHG emissions or adapting policies and infrastructure to cope with the national implications of global warming. However, climate change is a global issue. Indeed, in a world economic, financial, and political system that is increasingly being driven by the forces of globalization, it is not just these direct impacts that need to be considered. Three events in the first decade of the 21st century can be used to illustrate this. First, although the 9/11 terrorist attacks took place in the US, they set off a chain reaction of events that had major implications for defence, security, and the economy around the world. The consequences for the UK included war in Afghanistan and Iraq, and heightened concern about domestic terrorism. Second, in the mid-2000s, the appearance of SARS (severe acute respiratory syndrome) led to concerns about the spread of pandemic flu, major health alerts, and disruptions to international travel. Finally, problems in the US housing market during the late-2000s were transmitted throughout the world banking system to create a global financial crisis. All these events had major impacts on the UK and other nations around the world, but the origins of these events reflected international developments with initial triggers coming from very different parts of the world. It makes sense for policy makers and businesses to think about how the impacts of such events and related transmission mechanisms could transcend national boundaries and affect the economies, societies, and well-being of nations. The six articles in this Special Issue originate from a project that was commissioned by the UK Foresight Programme (the purpose of which is to help the UK government think systematically about the future, over a 20–80-year period) to investigate the international dimensions of climate change (IDCC). However, the research generated by the programme also has wider relevance for business planning and can help to inform public debate. Looking ahead over a 20–80-year period, climate change is clearly a major issue that government policy and business planning should take into account. Although the focus of the research presented here is to understand how the impacts of climate change in other places will affect one particular country (i.e. the UK), the questions, processes, and initial findings have international significance. As evidence emerges that those not directly affected by adverse climate change will nevertheless face significant risks and challenges imposed by events elsewhere, it is likely that the global nature of climate change will have – in addition to policy and strategy implications – an influence on the climate change negotiations.

UK Consumer Spending: Prospects for the Late 1990s

Over the last eighteen months, strong growth of personal consumption has fuelled the growth of the UK economy raising fears of a 1980s style consumer boom. The boost to consumption provided by “windfall gains” from building society conversions has added to these fears. In this article, Guglielmo Maria Caporale, Andrew Sentance and Geoffrey Williams discuss the forces behind this recent pick-up in consumption and assess the prospects for consumer spending in the late 1990s.

Is the European Economy Turning the Corner

The European economy looks bleak. Unemployment is hight. Growth over the recovery has been weak. And Germany – the powerhouse – is facing major economic difficulties. However, Jenni Greenslade and Andrew Sentance argue in this article that a turning point is in sight. Some of the depressing influences on recent European economic performance are fading. And there is plenty of capacity for growth without inflationary pressures emerging. It is time to show some cautious optimism about European economic prospects, though the problem of high unemployment is likely to take many years to erode.

How High do UK Interest Rates Need to Rise

The Bank of England has inherited the responsibility for monetary policy at a difficult time. The UK economy has picked up strongly over the last year, but the pound has surged ahead. Consumer windfalls are also boosting the growth of domestic demand though their impact is uncertain. In this article, Andrew Sentance and Geoffrey Williams sift through the evidence relating to the Bank of England’s interest rate dilemma. At present, interest rates appear close to their peak. But that judgement needs to be kept under review as new evidence unfolds about the momentum of domestic demand and the impact of the strength of the pound.

Will Labour’s Economic Programme Work?

If Labour is elected to government on 1 May, it will inherit the lowest inflation of any incoming government over the last fifty years but the highest unemployment. At the same time, public borrowing is running at an unsustainable high level. In this article, Andrew Sentance examines Labour’s plans to expand employment while reducing public borrowing and containing inflation. He argues that Labour’s economic programme could work but a number of pitfalls need to be avoided. Monetary policy will need to be tightened after the Election and the fiscal squeeze implied by Conservative spending plans maintained – if necessary through higher taxes. The benefits from Labour’s employment policies could also be undermined by a high minimum wage, particularly if applied to young workers.

The Fiscal Straitjacket

Andrew Sentance concludes that it will be difficult for the new British Government to limit government borrowing without raising taxes.

The 1996 Budget: Is this the end of the tax‐cutting road?

Neither the short term outlook for the UK economy nor the state of public finances seem to support the case for tax cuts in the forthcoming Budget. Yet the Chancellor is under pressure to deliver a tax-cutting package of measures in the run-up to the General Election. In this article, Andrews Sentance considers how he might square the circle and analyses the outlook for public finances over the medium term. He concludes that recent Budget projections have lulled us into a sense of false security about the medium-term fiscal outlook.

UK INFLATION: DOWN BUT NOT OUT

The release of the December retail prices index showed a rise in both the headline and the underling rate of inflation. That was not altogether unexpected with higher fuel and tobacco duties feeding through from the Budget. But it provides a reminder that inflation can go up as well as down. Looking ahead, inflation can go up as well as down. Looking ahead, inflation will be subject to conflicting pressures over the remainder of this year. Worldwide, inflationary pressures are weak. But, on the domestic scene, a Mortgage rate cuts which have helped to bring down the headline rate of retail price inflation will be less helpful. Indirect tax increases will push up the RPI directly. And employees may look for some compensation for direct tax increases in the next pay round. This assessment looks at the likely impact of these forces on inflation and the future course of interest rates.

BRITAIN'S MANUFACTURING REVIVAL IS SET TO CONTINUE

The data for the first five months of 1994 have shown an encouraging pick-up in manufacturing output, which grew only slowly over the course of 1992 and 1993. The production of investment goods has picked up particularly strongly, after declining over the course of last year. That has benefited the engineering industry, which before this recent surge had seen little benefit from the recovery. In this forecast release, we look in more detail at the sources of this improvement in the outlook for manufacturing industry. Last year, manufacturing output was held back by the recession elsewhere in Europe and the weakness of investment. These factors have now become more positive and will sustain a strong manufacturing performance over the remainder of this year and into 1995. These demand side influences are also being assisted by positive developments on the supply-side of the economy, which should help to sustain the revival of manufacturing industry over the medium term.

LETTING THE GOOD TIMES ROLL

Kenneth Clarke must wonder what is so difficult about being Chancellor of the Exchequer. Since he took over at the Treasury in May 1993, the UK economy has grown at an annual rate of 3.5-4.0% and unemployment has continued to fall. Underlying inflation has remained around the middle of the governments 1–4% target band. And the current account deficit on the balance of payments has shrunk. True, the Chancellor had to bring in a tax-raising Budget in November, though even here much of the hard work had been done by his predecessor. The policy decisions over the next year or so will prove much more tricky, however. The Chancellor faces pressure to relax fiscal policy in the Budget. And he will almost certainly have to raise interest rates - possibly before the end of this year. In this Forecast Release we look at what the outlook for the economy now implies for the policy judgements that the Chancellor must make over the remainder of this year.