PEOPLE will draw their own conclusions from the political ructions in Westminster in recent weeks and the pattern of voting in the European elections.

However, although personal preferences and beliefs affect how we react to and interpret these events, the common factor in most politicians’ planning for after the election will be how to get to grips with the explosion in the national debt.

UK consumers and businesses had better get used to the idea that fiscal austerity will be a feature for many years, with the national debt heading for levels only previously attained in the aftermath of major wars.

Much of the UK’s growth in recent decades was driven by consumption (partly financed by taking out extra loans as houses rose in value) and by the Government’s expansion of spending on public services, both of which are likely to be less buoyant (to say the least) over the next decade.

The need for people to save more (coming to grips with past accumulated debt) and for the Government to put the public finances on a sustainable footing means that these parts of the economy are likely to be a drag on growth for some time.

Debt is changing its role from a propulsion system for the economy to an anchor. This begs the question of where the growth will come from, particularly as the production profile for the North Sea shows the UK moving from near self-sufficiency in oil in recent years to being a major importer by the middle of the next decade.

The most obvious driver will be sectors that are able to sell to the rest of the world or compete with things we currently import.

Although manufacturing is a relatively small part of the economy – under 15% – both it and the service sectors competing with overseas are highly responsive to changes in competitiveness.

The fall in sterling during 2008 is likely to transform the profitability of UK exporters but, if companies are expected to invest to expand their ability to benefit from this, they need to believe the stimulus will remain.

Although the recent rebound in sterling has not yet negated that benefit, it bears watching.

It seems unlikely that a benign way forward for the UK economy can be charted without the export accelerator pedal being pressed firmly down.

Although the debt legacy from the credit bubble years and the need to put the national debt on a downward trajectory are headwinds, economies have a way of doing better than you might expect from prevailing conditions.

An economy with a debt overhang and a fiscal problem needs a prolonged period of low interest rates (to render debts manageable) and an undervalued currency to offset the contractionary effects of restoring Government budget discipline.

With some mix of downward pressure on public spending and upward pressure on taxes likely, whatever the colour of the post-election Government, making use of tax concessions (ISAs and pensions) appears prudent, while the investment focus is likely to shift towards companies that will help the UK “pay its way in the world” after a period when “play now, pay later” was the dominant theme. Will that be so bad?

Andrew Bell,

Head of Research,

Rensburg Sheppards