What Has Happened in the Economy of the United Kingdom over the Last Two Years - Assignment Example

A Study of the Economy of UK of XXXXXX Presented By Number: Supervisor: a) How successful has the government and the Bank of England been in running the British economy over the last two years? With the housing markets in a disaster, inflation at its peak the United Kingdom is now showing sure signs of recession. Even though the country has been able to recover after the recession in 1990, the country is now after a long period of success and a booming economy seeing the recession coming in again (Jolly, 2008). United Kingdom stands on the sixth position on the basis of the purchasing power and the fifth in terms of the exchange rates. The different parts of the economy will be discussed in detail in the following sections. Gross Domestic Product: The Gross Domestic Product or the GDP of a country is a very important indicator of the country’s economy. The GDP of a country signifies the country’s overall growth. This indicates the heightened level of the economic activities and the high demand for the currency. The increase in the GDP always raises questions regarding the raised inflation levels as well which acts as an indicator to the monetary authorities to increase the interest levels within the country. The GDP and Inflation are normally based on two main concepts a) Consumer Prices Index and b) Retail Prices Index. The United Kingdom has seen a growth in the CPI over the years so as in the RPI. According to the national statistics, the CPI increase has been 5.2% and that of the RPI has been 5%. The increase in CPI and RPI is based a lot on the government and Bank of England contributions and looking at the stats it is very evident that the two have been contributing positively to the growth of the country (National Statistics: Inflation, 2008). The graph shows the growth over the past 4 years and if noticed there has been an increase however this is expected to fall drastically over the next year. Graph: Inflation Projection (Delusion, 2008) Banks: The Government and the Bank of England have made solid efforts to help the economy of the country. After studying the economy for the period 2006 – 2008, it has been noted that the Government and the Bank have played a very important role in the growth of the country’s economy. There have been constant efforts from the Government and the Bank of England to help the banks improve the current situation the government has taken steps of 50 billion pounds plan to nationalize the banks partly and also a promise of 250 million pounds has been made in the future. The Prime Minister has referred to this as a radical plan to assists the banks recover and get back into the normal course of business at the earliest. The Bank of England on the other hand has made available at least 200 billion pounds as short term loans to help restore the liquidity (MSNBC, 2008). Employment: Employment plays a very essential role in the economy of any country. The government has made strong efforts to ensure that the employment rates in the country increase and the government has tried to ensure the number of employed people in the country reaches up to 80 percent of the country. Efforts have been made yet there has been a big drop in the number of people who are employed within the country. There has been a constant decline in the number of unemployed. According to the Statistics the rate of unemployment was held at 5.5 percent and the trend of employment was moving in a downward direction. Apart from the issues of unemployment there have also been issues where the government aims at reducing or demolishing the minimum wages which has not been well received for the simple reasons that most of the people have already lost their jobs and with the decreased rates that are being paid, it would be almost impossible to survive in a country where the inflation rate is rising very quickly (Meadowcroft, 2008). Other Factors: The government has shown a lot of improvement on other factors like the housing and educational fields. The government has promised to help schools to bring them up to ensure better education for all the members of society. Apart from the schooling the government has also concentrated on the improvements of the housing markets. It has provided for providing additional homes as well. The government has been successful in this aspect and has been able to provide a total of 185000 by March 2006. The government has also been successful in improving the pensions for the employees and has been successful improving and bettering the pension provisions for the people. From the above discussion it has been very evident that the Government as well as the Bank of England have tried their best to help improve the country’s economic condition. It is quite evident that they have been successful over the past years however in 2008, despite all efforts by the government and Bank of England the country’s economics has been moving in the downward direction and the country is headed towards recession. b) Describe and evaluate the main macro economic policies used by the British government and the Bank of England over the last two years. The macroeconomic policies set down to help the macro economist make better predictions of the various aspects of like the employment facts, inflation, economic growth and finally the balanced external accounts. The government set these policies to understand the current situation of the markets and the economic goals are the most desirable for every country. The macro economic policies normally aim at the economic developments within the country and help the economist provide better information to the general public to understand the economy better. The first aspect of the policies that have been set down by the government of UK in the white papers in 1944 is full employment. Full employment refers to the employment of the labour forces within the country to ensure complete use of human resources and better productivity of the country. It is to be noted that the government aim is to ensure that almost 80 percent of the working age population of the country are provided with jobs (Gore and Murray, 1991). The government’s efforts have been immense to ensure this target has been met. It is to be noted the country did reach this target was very close in 2007 when the country managed to provide jobs to 72 percent of the population, where almost 81 percent belonged to the working age population. This has been the highest recorded for the country. However after this the rate of employment has been decreasing drastically and the number of people losing jobs has been very high. United Kingdom having the most diverse and most wide range of people from all across the world cannot afford to have the people losing out on jobs. The loss of jobs for the employees would mean the resources being wasted and that could cause the country’s economy a big loss (Gore and Murray, 1991). The national statistics show that the country’s employment levels have fallen by almost 5 percent which means more number of people has been loosing the jobs. The next important aspect is that of stability of prices. Stability of prices refers to the prices of goods remaining the same within a country over a year. Any increase in price would mean the country is facing inflation and this would not be very beneficial to the people within the country. Inflation can be very harmful to the citizens of a country as it would have an impact on the every day life of almost every individual as well as the businesses within the country. Most importantly the businesses dealing with other businesses overseas face the highest losses as the value of the home currency becomes lesser than that of the business overseas. This would mean that the business requires paying more for almost every aspect of the business. The inflations rates have been very high over the past years where the 70s saw a rate of almost 25 percent. This however has not reduced to much lower levels and the rates have been close to 4.27 percent in 2007. United Kingdom however is now starting to face inflation again and the rates are expected to reduce a lot over the future months. The exchange rate of the country has also reduced a lot over the past few months and the exchange rate has now decreased in comparisons to the other countries like US where the rate has come to 1.6120 USD for 1 GBP, when compared to the Australian dollar the rate has come down to almost 2.44394 AUD for each GBP and even when compared to the Indian rupee, the rate has reduced a lot and is close to 79.7191 whereas the earlier rates were closer to almost 85 INR. These shows the current markets of the UK are moving in a downward slope and so is the economy of the country. This is a clear sign of the economy of the country moving into recession. The other important point to be discussed within the policies is the balanced external accounts of the country. It has been seen that the country has had accounts which have always been in deficits (National Statistics, 2008). This has not been an issue for all these years however with the deficits increasing drastically the economists are now worried about the future of the country as the expenses of the country have been extremely high and the deficits have been soaring as well. The government and the Bank of England have put in a lot of efforts to reduce this as much as possible however the internal state of the country has not been very helpful and has not provided any assistance to help reduce the external deficits. Generally all deficits are financed and all the surpluses are invested, all these type of transactions normally come into the capital account of the country. These play a very important role in the economy and can be used as a source to make up for the high inflation. However the Unite Kingdoms has not been able to compensate enough of the external trades to compensate the inflation. Thus the country is facing both high inflation as well as high financial deficits. Another very important point in the policies is the total economic growth of the country. The economic growth of a country is the change in the gross domestic product of the country over the gross domestic product at the beginning of the year into 100. This would generally take into account the total national income. The fundamentals are very simple, the higher the national income the better the economic growth of the country. United Kingdom has seen a continuous ride in the number of goods and services which have been produced with the country hence increasing the national income of the country. The other basis on which national income of a country can increase is technological developments, better man power and better output from the man power. The United Kingdoms has seen immense growth over the last sixteen years however now the rate of growth has reduced a lot. According to the national statistics the rate of growth in 2007 was just 3.1 percent. This however has been vey fast when compared to the consecutive three years. However the country has seen a strong credit crunch after this and the growth is expected to reduce much more over the next few months. Despite the efforts from the government the country has now started to feel the financial crunch after all the years of strong economic growth. The country has always been on the top in almost all respects and the country has been able to recover well from the previous crashes. The government has played a very important role in this regard and the country has been able to recover and has seen a constant growth since the 1990 crash. References Delusion, 2008, ‘Inflation Projection’, Accessed on 1 November 2008, Retrieved from http://www.delusionofgrandeur.co.uk/wp-content/uploads/2008/06/inflationprojectionmay08-300x249.jpg Gore, C., and Murray, K., ‘Macroeconomic Policy Objectives’, ACCA Students Newsletter, April 1991, pg 8- pg11 Jolly, D., 2008, ‘British Economy falling into American style slump’, International Herald Tribune, 3 July 2008, Accessed on 1 November 2008, Retrieved from http://www.iht.com/articles/2008/07/03/business/ukecon.php MSNBC, 2008, ‘U.K. Government to partially nationalize banks’, 8 October 2008, Accessed on 1 November 2008, Retrieved from http://www.msnbc.msn.com/id/27078582/ Meadowcroft, J., 2008, ‘Unemployment and the minimum wage: the government cannot escape responsibility’, 17 September 2008, Accessed on 30 October 2008, Retrieved from http://blog.iea.org.uk/?p=94 National Statistics, 2008, ‘Latest Indicators’, accessed on 4 October 2008, retrieved from http://www.statistics.gov.uk/instantfigures.asp National Statistics: Inflation, 2008, ‘Sept: CPI up to 5.2%, RPI up to 5.0%’, 14 October 2008, Accessed on 1 November 2008, Retrieved from http://www.statistics.gov.uk/cci/nugget.asp?id=19 Read More