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UK ECONOMY 2012 - BRITISH CHANCELLOR GEORGE GIDEON OLIVER OSBORNE

UK ECONOMY 2012
To: The Right Honourable British Chancellor George Gideon Oliver Osborne MP.
From: Athinarayanan Sanjeevraja
Date: January 30, 2012
RE: UK Economy
Suggestion:   Identifying and correcting the fundamental factors that is behind low economic growth Minister.  
Good Morning Mr. Minister. From my perspective, UK government policies are not broadly right except in the political spectrum sense. I do not get it right why UK government repeatedly do the same things and expect a different outcome. Even When I wrote to BoE Governor Sir Mervyn King on October 17, 2011 saying that most of his monetary policy measures are just postpones the problems when that policy expired sentiment falls unless there is a stable strategy. The first round of QE was vital to improve liquidity in the banking system during global financial crisis. For the reason that interbank lending was dry and LIBOR spreads were widen. We had to take action to inject cash into economy by undertaking series of asset purchases principally gilts. It was fine. Later, BoE plans to buy £75 billion of gilts over the next four months. I said it very clearly Keynesian model more QE drives up bond prices, put more pressure on Pound, increases import prices, leads to higher inflation, more pressure on real incomes, reduce household spending, reduce demand, penalize savers and leads to lower growth. BoE monetary policy committee members assume that lower interest rate will lead to higher level of investment. This is an erroneous hypothesis. Richard Koo has described this mechanism very accurately – saying that “low interest rates do not stimulate investment as companies do not wish to borrow to invest as their priority is to pay down debt”.
UK austerity program proved macroeconomic failure. Private sector is not expanding but contracting which is the opposite of what you promised in fiscal policy would achieve because any policy involving swinging public expenditure cuts is bound to have a significant deflationary impact and there is no good reason to believe that the private sector will take up the slack and become an engine of growth. In gloomy condition viable investment opportunities are few and far between. That is why investment has collapsed along with consumption even with low interest rates. As a result, UK contracted 0.2 percent in the fourth quarter of 2011. The down turn was led by manufacturing which saw production fall 0.9 percent and construction fell 0.5 percent. Why UK has failed to understand for the many years its manufacturing base has been ebbing away? From my perspective, UK manufacturing policy is still ineffective. In an effort to revive the manufacturing sector, first focus on raising the productivity and remove barriers to growth for new entrants such as land use restrictions and regulatory burdens to make the UK the most attractive place for multinationals. If you want to know more about UK manufacturing, please visit the link, http://athinarayananadvisoryauthority.blogspot.com/2011_12_18_archive.html . I wrote to Secretary of State for Business Mr. Vince Cable MP on December 19, 2011.
Moreover, UK government must support national export drive. In order to safeguard and to enhance the competitiveness of UK companies, protection against the risks that arise from exports has to be provided such as offer protection from non-payment, make export financing easier for SMEs including supplier credit cover, buyer credit cover and whole turnover and revolving cover etc. make it possible to open up difficult markets and maintaining trade links despite troubled times. In such circumstances UK exporters were able to build or main their market position with the assistance of the export credit guarantees. Manufacturing risk cover protects from the risk during the manufacture of goods earmarked for export. 
I hope that you pay much attention to reach sound budget in 2012 securing UK economic recovery and strengthen the financial security of Britain’s and low tax plans for jobs and growth
I am Athinarayanan Sanjeevraja with great respect of you Minister.  


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