Developments in the UK Economy

The choice of currency regime matters - and this new piece from the Economics Observatory makes for fascinating reading.

Should a carbon tax vary according to the stage of the economic cycle helping to mitigate some of the risks of emissions reductions on jobs and real incomes during tough economic times? This is the main argument of research presented in this VoxEU paper. Economists Ghassane Benmir, Ivan Jaccard and Gauthier Vermandel make the case that the optimal carbon tax should vary substantially over the economic cycle. It is the sort of argument that would classify as excellent evaluation when discussing some of the potential trade-offs between policies - in this case, between environmental policies and their short-term macroeconomic impact.

The pound is appreciating against the Euro in part because economic confidence in Europe's largest economy Germany is weakening. But also because of expectations that the Bank of England will start raising interest rates this autumn as inflation increases. What impact might a stronger pound have on the uK economy?

Every little helps! Tesco's £1,000 signing on bonus for HGC drivers is in a sense, the natural market response to the chronic shortage of qualified drivers that is threatening to impede economic recovery from the pandemic. The shortage of drivers is a long term problem exacerbated by short term issues including the loss of thousands of non-UK drivers due to Brexit, the postponement of over 30,000 HGV licence exams during lockdown, allied to the more recent impact of the "pingdemic" with thousands of drivers having to self isolate. No doubt Tesco and other large-scale companies such as Amazon, DPD, Hermes and the major supermarkets, have the financial resources to bid up pay and offer bonuses. Small-scale haulage companies operating in an industry with low profit margins, have much less scope to do likewise and they fear losing some of their own drivers to businesses ramping up pay. The shortage of drivers - it takes up to six months to fully train them - shows the important linkages between the labour market and the wider macroeconomy. What government policy interventions might be effective in addressing the shortage of HGC drivers? Why do we all pay the price when a chronic excess demand for drivers is allowed to persist?

Example here of external growth in the technology sector. Tencent has huge commercial interests in esports and other areas of online gaming. 

Nouriel Roubuini, aka Dr Doom serves up a litany of downside economic and geo-political risks for the world economy as we tip toe hesitantly into 2022. Some of them are well understood such as the threats from the excessive reliance on cheap credit that consumers and businesses in many advanced countries have come to rely on pretty much since the Global Financial Crisis. How far will central banks go in normalising monetary policy by reversing QE and raising policy interest rates to combat inflationary pressures? We heard a lot of the term "transitory inflation" during 2021. Will actual and expected inflation become more permanent in the year ahead? Roubini is an acknowledge expert on the causes and consequences of financial crises, so this opinion piece from the Guardian is well worth a look.

There are so many micro and macro aspects to this news story about continued heavy losses at the UK operation of Indian conglomerate Tata Steels. Operating losses are a shade under £1 million per day which seems big enough except that this represents an improvement on the previous year when losses exceeded £600 million. The pandemic-induced collapse in investment spending caused a steep fall in the derived demand for steel in a sector already experiencing excess capacity. Steel demand is picking up but Tata is now facing up to higher costs that are Brexit-related including import tariffs on some raw materials, increased logistics costs - few industries these days seem immune from the chronic shortage of qualified HGV drivers. And as an interesting side issue, Tata Steel has had to borrow money to help fund the purchase of carbon credits since the steel industry remains - for the moment - part of the EU carbon emissions trading scheme. 

This new paper from Bloom et al from Stanford provides an overview of how original pioneer locations of disruptive technologies such as AI and broadband retain their initial advantages over many years running into decades. One possibility is that the original pioneers become major employers and attract even more highly skilled workers to where new jobs linked to these innovations are being created. Another is that established firms based elsewhere move jobs to the innovation hubs. And clusters of disruptive businesses provide a fertile environment for start-ups many of which are founded by former employees of established and dominant businesses, 

This is a superb video from the FT looking at how the clean energy revolution is changing the landscape of the north-east coastal town of Blyth. The area has suffered grievously from the loss of thousands of jobs directly and indirectly linked to coal-mining. Economic inactivity rates remain high and per capita incomes remain well below the regional and UK average. But this video provides an optimistic picture of how new investment in clean renewable energy offers hope of a structural transformation for Blyth. There is so much economics in this video - from the fast-changing nature of energy economics, to regional multiplier effects from investment and the extent to which capital intensive building projects create enough new jobs to replace those lost from previous decades. 

The estimated shortage of 100,000 HGV drivers would make for a superb introductory economics lesson. What is causing the shortage of lorry drivers? What are the likely effects on the economy (including the reality of higher distribution costs and the risks of shortages of key components, foodstuffs and other supplies). And, perhaps of more significance, what can be done to overcome this labour shortage. 

An important report for students to enrich their understanding of key drivers of competitiveness in emerging industries.