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tax obligations, and other measures. At the same time, credit was made widely available by central banks and the rate of interest was brought practically to zero to encourage spending. Governments, in other words, gave a significant boost to aggregate demand, which started to become obvious in 2021 as the restrictions and lockdowns were gradually lifted, or softened. At the same time, those who have higher incomes were able to accumulate savings at the peak of the restrictions. When the world started to open up again in 2021, their spending increased rapidly. Aggregate demand was further boosted. At that point the weakness of supply became obvious, especially in the UK. The surge in aggregate demand met a constrained supply and, inevitably, the prices of many goods and services began to rise. A great pulse of inflation was felt around the world from the summer 2021, with the UK at the forefront. The underlying weakness of aggregate supply in the UK is the result of trends and policies that have transformed the country during the last four decades. It reflects the loss of manufacturing industry, the resulting reliance on imports, the extraordinary scale of privatisation, and the dramatic changes in energy provision. It also reflects the further shift of the economy toward services, affording even greater power to the financial sector, with the City of London enjoying unprecedented freedom to transfer money capital across borders and make speculative profits. The result has been the financialisation of the UK economy and a huge imbalance in economic power and vitality between London and the South-East and the rest of the country. Vast areas of Britain that used to excel in manufacturing have been mired in stagnation and poverty for decades.

There are two simple ways of showing the deep and persistent weakness of aggregate supply in the UK.

The first is the country’s very poor record in investment over a long time, including during the last decade. Investment is obviously the driving force of aggregate supply as enterprises renew their productive capacity and improve technology. But those who own and control productive resources in Britain have failed to invest in strengthening the country’s productive structure, as is clear from the simple graph below. Britain has consistently performed worse than Germany and France.

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