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The UK Growth Conundrum: With historically low interest rates, a huge budget deficit and a stagnant private sector, how do w - Essay Example

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The UK Economy The double dip recession poses serious risk on the economy of U.K. the turbulence in Europe is creating a crisis on the economy but researchers are of the opinion that the sluggish growth of the economy is the after effect of the economic decisions taken closer at home…
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The UK Growth Conundrum: With historically low interest rates, a huge budget deficit and a stagnant private sector, how do w
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The UK Growth Conundrum: With historically low interest rates, a huge budget deficit and a stagnant private sector, how do w

Download file to see previous pages... The economy is in need to stimulus but the government is still posing the unprecedented actions of cutting spending which is reducing the growth prospects and in turn affecting the standard of living of the households. The aim of the assignment is to analyze and find out the ways through which the economy can be set course for the path of revival. The paths are directed towards increasing the demand conditions and boosting the level of employment so as to enable more and more people join the workforce and become eligible to lead the minimum life standard. The workforce will strengthen the economy in the long run. The feasible ways to revive the economy 1. The quantitative easing technique The bank of England took the initiative of quantitative easing in order to boost the economy. The action was welcomed but the last round failed to provide significant efforts over the economy. The printed money either caught up in the bank account or played the part in prop up asset prices. With the view to make the action more effective the money can be channelled directly to the firms which make use of the money in expansion process. The money can be used in purchasing corporate bonds or through a new government owned investment vehicle. Such a process will ensure better us of the printed money than just increasing the share prices. 2. Reverse the VAT rise The rise in the rate of VAT can add to the ooze of inflation which in turn sucked the demand and resulted in contraction in demand conditions. If the rate of VAT would have been constant then the CPI figures would have been much lesser than actually achieved. The rise in the rate of VAT contributes in adding to the squeeze on real wages (Wall and Griffiths, 2008). The expenditures made by the households would have been affected which will cause pain on the high streets. VAT is a type of tax that hurts the low income earners more as they are willing to spend much of their incomes. On the other hand it hurts the high income earners less as they are willing to save a major proportion of their income. If the VAT is reversed it would cause to bring down the level of inflation while raising the real wages. It would put money in the pockets of the consumers and it would boost the economy in the long run. 3. Raise capital allowances The government is playing the role in corporation tax cuts by reducing the capital allowances. The capital allowances allow businesses that invests in order to claim or the value of some proportion of that investment and as a result reduce the bills made on taxes. The net result of these changes is to channelize the money from the businesses that invest heavily to the businesses that are short of investments or in other words from the manufacturing to the finance sector. Such a strategy would go against the target set by the government to rebalance the economy but would contribute to the lack or shortfall of investment that the economy is currently experiencing. The increase in the capital allowances would act as the catalyst in encouraging the businesses to focus on the long term growth strategy and in turn help to increase investment and the domestic demand will rise. 4. Investments on training of young generation There are more than one million unemployed in the economy who are looking to join the work force. One can thought of two independent responses that can be introduced by the government. ...Download file to see next pagesRead More
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