The Impact of High Consumer Spending on UK Economic Growth

This essay investigates the impact of high consumer spending on the long-term economic growth of the United Kingdom. It explores various factors influencing economic development, such as aggregate demand, political stability, and capital formation, highlighting how these elements interact with consumer behavior. The analysis delves into the consequences of high spending, including its effects on the balance of payments, imports, exports, and the overall GDP. The essay also provides recommendations for controlling consumer spending, such as adjusting interest rates, implementing effective fiscal and monetary policies, and encouraging foreign investments, to foster sustainable economic growth and stability. The study concludes that while consumer spending can benefit the economy, excessive spending can limit long-term economic growth, leading to potential imbalances and hindering the UK's economic progress.

High Consumer Spending in the UK Limits Long-
Term Economic Growth

Table of Contents
INTRODUCTION..............................................................................................................1
BODY............................................................................................................................... 1
Factors that affect economic growth........................................................................1
Impact of high consumer spending in long term economic growth of UK................2
Recommendation to control high consumer spending for betterment of long term
economic growth......................................................................................................4
CONCLUSION................................................................................................................. 5
REFERENCES.................................................................................................................6

INTRODUCTION
Economic issues are increasing in the nation frequently, this topic is beneficial to
identify buying capacity and income status of population. By this way it can be analysed
whether country is developed or under developed. (EMMONS. W. R, 2012) This
investigation will give overview of the future of the region so that government can take
necessary actions on time and can make economic position stronger.
High consumer spending is appropriate for current situation but for long run it is
not that much effective. It can increase demand and can reduce supply. This imbalance
will create huge trouble in future for the region. That can create problems like shortage
of funds and other issues, that would hinder the economic growth of the country. High
consumer spending in the UK limits long-term economic growth is completely
acceptable statement (BRITISH CHAMBERS OF COMMERCE, 2017).
Consumers are the backbone of every organization; their spending not only
assist in increasing profitability of entity but also it impacts on long term economic
growth of the country. Falling employment rates, reducing value of currency, inflation
etc. are the biggest threats to the UK’s economy . Present report will discuss extent to
which high consumer spending in UK limits long term economic growth (The Deloitte
Consumer Tracker Q1 2017, 2017).
BODY
Factors that affect economic growth
According to GILES, (2017), there are many factors that affect economic
development of region. One of the major cause is aggregate demand (AD) (Monthly
economic commentary, 2017). If demand gets enhanced then supply sothen it may
cause trouble for the organization because it will affect the manufacturing sector to the
firms. Political instability is another major element that may affect economic ontogeny of
UK to a great extent (Factors affecting economic growth, 2011). For instance, if political
parties get changed frequently then it will impact development of the nation. This
instability may be negative for the country. As per the view of EMMONS, (2012)
Increment in aggregate supply is another cause that impact on economic growth of
country. Author has explained that if production capacity of the region is not good and
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supply get increased then in such condition it would impact on productive capacity of
organization by this way financial position of the place will get negatively affected.
As per the view of PERKINS and Fenech, (2017) Over the last few years United
Kingdom has faced, housing bubble, changes in oil prices, Geo- political risks, banking
system and cyber threats etc. which have affected the economy of the place badly. Due
to this currency value got down and that has affected purchasing capacity of population.
But government has control this situation and worked hard to improve the condition of
the UK. Now people have sufficient job opportunities (PERKINS and Fenech, 2017).
According to EMMONS, (2012) capital formation is considered as one of the
major element that impact on economic growth of country. If capital formation increases
then it helps in increasing availability of capital per worker. By this way optimistic
outcome will be achieved, on other hand if people spend huge amount continuously
then this capital formation will get affected that would negatively impact on economic
growth of the country. Because in this way UK will not be able to enhance value of
currency of the region.
Impact of high consumer spending on long term economic growth of UK
United Kingdom is country where people love to spend in on quality and branded
products. They like to enjoy their life; UK’s population spends lot of money in buying
products and services of the companies. PERKINS and Fenech (2017) has argued that
consumers spending on purchasing products help in increasing revenues of
organization. Through this way these entities pay high tax to government revenue
increases in form of duties and taxes that helps in development of the country and
increasing job opportunities. Consumer’s spending indirectly impacts positively on
economic growth of the nation (BRITISH CHAMBERS OF COMMERCE, 2017). As per
the view of EMMONS, (2012) GDP rate is much more depended upon customer's
spending capacity. If people do not spend much amount then tax revenues and demand
will be reduced. Thus, high consumer spending is good for the long run economic
growth of the country.
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Illustration 1: Real consumer spending in UK
Source: (The Deloitte Consumer Tracker Q1 2017, 2017)
Furthermore, there is strong relationship between consumer spending and
economic growth. High spending affect negatively have negative impact on economic
growth in long term. Consumer spending contribute approx. 70% in the economy
(PERKINS and Fenech, 2017). It is fact that high consumer spending impacts
negatively on balance of payments. It enhances imports but decreases exports because
firms fail to manufacture products at faster rates. Thus, in long run high spending
creates imbalance in demand and supply that negatively impact on economy growth of
region and limit economic development of UK (BRITISH CHAMBERS OF COMMERCE,
2017).
As per the view of EMMONS. (2012) economy growth is much more depended
upon the investments, if foreign investment are higher than it would help in increasing
value of currency to great extent. On other hand it ends with high consumer spending.
Author has stated that policy maker gets confused when people start spending high
amount. Because it prohibits long run economy growth of the nation. Researcher has
argued that from the sense of GDP, consumer spending contributes 70% in the growth
of economy but when it looks from the perspective of high spending then it affects long
term economy growth to great extent. PERKINS and Fenech, (2017) has argued that
consumer spending is considered as one of the crucial factor, high customer confidence
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impacts on the economic market significantly. Due to high spending fiscal, monetary
policies have to get changed that impacts on the overall business operations. In long
run high spending affect buyers power and after certain time duration people became
unable to survive in the market. It is fact that high consumer spending impact negatively
of balance of payments. It enhances imports but decreases exports because firms fail to
manufacture products at fast rates. Thus, in long run high spending create imbalance in
demand and supply that negatively impact on economy growth of country and limit
economy development of UK
According to GILES, (2017) spending of consumer is increasing rapidly in the UK
and that is why imports are increasing in the country day by day. In the year 2007 due
to high imports inflation rate of United Stated got increased. That shows that high
spending impact on the economy growth negatively. Author has stated that increasing
spending always bring inflation in the location and due to this, people become unable to
spend average amount in the future. Because they will not be capable to spend such
large amount. It will create situation of disposable income in which trade will get down
and that would affect overall economy condition of the country to great extent. Because
that may limit revenues of organizations and will decrease employment rate. By this way
companies will not generate income thus overall financial condition or value of currency
will get down after certain time duration.
Recommendation to control high consumer spending for betterment of long term
economic growth
Development of effective policies can support in making people understand that
to limit their spending because it is not effective for long run economy development of
the nation (Monthly economic commentary, 2017). High interest rates, GST etc. can
limit spending of population and it will help in development of region. There are several
ways that can control the high consumer spending soon. These are as following:
 Government should increase interest rates because it will help in enhancing cost
of debt. Thus people will have less money and they will think before making any
spending decision.
 If authorities make effective fiscal and monitory policies then it will help in
controlling spending of population. Because they will not be able to spend
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unnecessary. By this way currency will be saved and they will save money. It will
make the future more bright and make the economy more strong.
 More foreign investments will help in making the currency of UK more strong. By
this way government will be able to make good decision of development. That
would increase employment opportunities. By this way per capital income will be
improved and it will assist in the growth of economy of the nation.
 Banks should grant loans to consumers after checking their background and
reason of taking loan properly.
CONCLUSION
From the essay it can be concluded that customer spending can be beneficial in
economy development but high spending limit the economy growth of UK. Due to high
spending county may face issues like imbalance in demand and supply that affect value
of currency of the location. From the discussion it can be articulated that high consumer
spending impact negatively of balance of payments. Due to this, imports get increased
but decreases exports as well because firms fail to manufacture products at fast rates.
Thus, it creates imbalance in demand and supply that negatively impact on economy
growth of region and limit economy development of UK.
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REFERENCES
BRITISH CHAMBERS OF COMMERCE, 2017. BCC: Strong service sector and consumer
spending drive UK growth upgrade.. [Online] Available through:
<http://www.britishchambers.org.uk/press-office/press-releases/bcc-strong-service-sector-
and-consumer-spending-drive-uk-growth-upgrade.html>. [Accessed on 8th July 2017].
EMMONS. W. R, 2012. Don’t expect consumer spending to be the engine of economic growth it
once was. The Regional Economist. January 2012. [PDF] Available
through:<https://www.stlouisfed.org/~/media/Files/PDFs/publications/pub_assets/pdf/re/
2012/a/Consumer_Spending.pdf>. [Accessed on 8th July 2017].
Factors affecting economic growth, 2011. [Online] Available through:
<http://www.economicshelp.org/blog/2671/economics/factors-affecting-economic-
growth/>. [Accessed on 8th July 2017].
GILES, C., 2017. [Online] Available through: <https://www.ft.com/content/effd72cc-5d6e-11e7-
9bc8-8055f264aa8b>. [Accessed on 8th July 2017].
Monthly economic commentary, 2017. [Online] Available through:
<https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/articles/
monthlyeconomiccommentary/june2017>. [Accessed on 8th July 2017].
PERKINS, B. & Fenech C., 2017. [Online] Available through: <https://www2.>.
[Accessed on 8th July 2017].
The Deloitte Consumer Tracker Q1 2017, 2017. [Online] Available through:
<https://www2.deloitte.com/uk/en/pages/consumer-business/articles/consumer-
tracker.html.>. [Accessed on 8th July 2017].
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