Competitiveness of the United Kingdom Economy

How competitive is the UK economy? Is it capable of responding successfully to shocks emanating from abroad? The five case studies prepared for this volume identify the main problem areas which currently affect the ability of the UK to sustain a competitive international position. First, in a world in which there is uncertainty about exchange rates, interest rates and economic policy, it is difficult to distinguish between relative price changes which are purely transitory and those which are permanent. As a result changes in output may occur where none were warranted. Second, barriers to entry and exit in product and input markets prevent resources from moving from areas where demand is declining to those where it is strong. These two considerations, plus the fact that production takes time, generate economic costs in the reallocation of resources in response to demand and input price changes. On the other hand, the more modern and flexible the production processes adopted by British industry, the more rapidly will the British economy be able to compete in international markets.