Investments  

Tory MP Redwood brands UK deficit not important

Mr Chatfield Roberts added QE is deflationary because the low interest rates mean more companies are able to pay the interest on their debt, and so not go out of business.

It leads to an oversupply of goods and services in the world, so companies cannot put their prices up, and so have little incentive to increase production or invest in new machinery as the price they receive for the goods will not be attractive enough to justify the risk.

Such a lack of pricing power at companies means they won’t put wages up, but the fact more companies stay in business than would do in a normal economic cycle means more workers stay in jobs, so the unemployment rate is low, even as wages don’t rise.

Mr Redwood argued instead of focusing on the UK deficit the government should concentrate on the current account deficit - the difference between the amount the UK receives from exporting to other countries and the amount it pays out for imports.

This deficit has been funded by the UK selling assets such as property, but also shares, to overseas investors.

Bank of England governor Mark Carney has described this situation as “relying on the kindness of strangers”.

Mr Redwood said: “It is high by world standards, and means we gradually get into more debt or sell more assets to keep up with it.”

Mr Redwood is an advocate of the UK leaving the EU, and said this will contribute to a reduction of the current account deficit.

David.Thorpe@ft.com