Effects of the Government and Bank of England on the Economy - Essay Example

UK: Effects of the Government and Bank of England on the Economy Period: November 2006 to November 2008 XXXX Submitted By: XXXX Number: XXXX Tutor’s Name: XXXX Number of words: 2070 (excluding Appendix and Bibliography) Date of Submission: XXXX University of XXXX How successful has the government and the bank of England been in running the British economy over the last 2 years (Nov 2006- Nov 2008) A country with an uninterrupted growth of almost 16 years, with the fifth largest economy on the basis of the exchange rates, and the sixth largest on the basis of the purchasing power parity, UK has been the best economy for a very long time. It has had the ninth highest GDP per capita (Kirkup, 2008). Although almost all the countries of the world are trying to get past the major crash in 1970, the deputy governor of the Bank of England commented that the world economy has a long way to go to stabilise after the crash. Every country sets down a set of economic goals for the country to analyse the country’s economy. The country has seen the slowest economic growth over the past three years. This slow growth is felt with the increasing prices of the interest rates and the increasing prices of goods and services within the country. The country has seen an rise in the gross domestic product of almost 0.2 percent in the quarter ended June 30th bringing down the annual GDP to 1.6 percent from 2.3 in the first quarter (Duncan, 2008). In the last two years the government of UK and the Bank of England have made a number of efforts to improve the UK economy. The government of United Kingdom have seen a lot of variations in the economic condition. The system has seen a big dip post the oil shock in 1970, which caused the prices of the oil to increase which influenced the Bretton woods system of the economic stabilisation and also affected the contraceptive pills on the social dynamics (Daley, 2008). The government of United Kingdom has made a number of attempts to ensure the economy improves. Looking at the various affects on the economy it is very clear that the government and the Bank of England have worked towards ensuring the economy of the country moves in an upward slope rather than in a downward one. These efforts however have not been very successful as the country is now moving into a recession. Annual reports however show that the country has worked towards growing the employment rates in the country. The annual report showed that the country has been moving towards its goal and has been able to get close the goals set in the Lisbon strategy. The report showed that the country has been able to make an economic growth of almost 2 ¾ percent in 2006 when compared to the aims set by Lisbon at 3% by 2010. This clearly signifies the amount of efforts that have been put in by the Bank of England and the government. It is seen that with all these efforts United Kingdom is one of the three member states to have been able to achieve the Lisbon employment targets and will probably move ahead of the target before 2010 (Lisbon Strategy, 2007). There have also been immense improvements in the housing markets of the country. Reports have shown that the country has been able to supply more number of houses and the government has set a higher standard of houses which would be supplied by 2016. The government has set it to be at two hundred and forty thousands by 2016. The efforts from the government are also seen here and the government has been able to provide as much as a hundred and eighty five thousand houses by March 2006. Also the government has understood the importance of the pension difficulties faced by the employees and hence has tried to ensure better and easier ways to provide pension to the people (Lisbon Strategy, 2007). Also the Bank of England has been trying to help the country by reducing the interest rates. The commercial banks of the country have been facing a lot of liquidity issues and the Bank of England has made solid efforts to improve this conditions. The bank has also provided the commercial banks with almost 50 billion pounds to partly nationalise the banks and aims at providing another two hundred and fifty billion pounds in the future. The Bank of England has also made almost 200 billion pounds available as short tern loans to help with the issues of liquidity. The most essential factor that has been given a lot of importance is the employment facto. The aim of the government is to provide the country with at least 80 percent of the working age group of people being employed. The government has made solid efforts in this regard and it has been seen that the country has been able to almost reach the stage. However in the past two quarters the employment rates have been reducing a lot and the graph is one which is downward sloping. Apart from which there have been plans of the government to reduce the minimum wages payments which have been a huge drawback for the country as the people will not be provided with the minimum wages would mean that the survival in the country would almost be impossible as the cost of living has been rising at unstoppable rates and so is the inflation rates (Meadowcroft, 2008). Also with the prices of the goods and services being very variable it shows that the country’s inflation rate has been increasing. From the above discussion it is quite evident that despite all the efforts put in by the Bank of England and the Government the country has moved into the recession zone and that the country is now facing a break in the continuous growth over the past sixty four quarters. Describe and evaluate the main macro economic policies used by the British government and the Bank of England over the last two years. Governments of different countries fix different economic goals for the country to ensure that all the resources of the country are well utilised. These goals mainly aim at what might happen within the country. The economic goals are very important for every country and are influenced by both the politics within the country as well as the economic experts influences. The economic goals for the country were set down by the government of UK in the white papers of 1944, which mainly classified the economic goals to be based on four main factors namely (Gore and Murray, 1991): a) Full employment: This is a very important factor for the country and it aims at utilising the resources to the fullest. The government of United Kingdoms believe that using at least 80 percent of the total working age population will help the country produce to its optimum level. If the resources are underutilised or unemployed it clearly means that the country’s resources are being wasted and the country can produce much better results. Under utilisation of the human resources would mean reduced output and production. This will affect the individual also to a great extent as it is up to the individuals to work to be able to earn for the families (DWP, 2007). The government has taken all the possible steps to help increasing the levels of employment. The government has been able to achieve a high of almost seventy two percent however this has not been for a long time and the employment levels have been reducing constantly ever since. In a survey conducted by the Labour Force, the unemployment rates have risen by almost 5.5 percent. The country had also seen the highest number of people at work for the first time ever which reached a high total of almost 29.5 million. However there has also been a drop in the number of employed people. The country has seen a good growth in the employment levels after the big crash in1992 where almost three million people lost the jobs. With the high rate of people losing the jobs it is now a very important fact that needs to be considered. If the country’s economic condition and welfare reform are in place. Also it is important to understand the United Kingdom has the widest range of workers and diverse employment which allows the people to combine work and employment (Labour market Statistics, 2008). b) Stability in prices: This is one of the other very essential factors that need to be considered and is the second most important macro economic factor. Stability in prices refers to the idea that the countries goods and services prices remain constant. The change in prices affects the economy. Increase in the average prices would signify the country is moving towards inflation and that would mean higher interest rates. Also with the increase in the interest rates it would likely affect the various other aspects like the savings. Pensions, lenders and export and import businesses. If the value of the pound increases it would simply mean that people would be able to buy much lesser for the same amounts of money. This will affect the general public and buying of the regular necessities would become difficult. The country has been progressing towards this stage and now and it is predicted to fall into a worse stage in the future. Apart from the normal life of the people which will be affected even the exporters will face serious issues as the prices they pay will be far more than the competitors abroad and hence the profits will be affected. The inflation as of 2007 has been around 4.27 percent and is still increasing (Lawrence, 2008). c) Balanced external accounts: The United Kingdoms has always had its external accounts in deficits. An external account refers to the accounts that record the transactions of the country with the other countries. These generally include both the different trades i.e. visible as well as invisible. Visible trades are the ones that include physical goods whereas the invisible trade is something like a service. The country has always had a deficit in the accounts since 1997. It is in 207 that the country might have reached close to zero however it again rose and now is again very high. The countries deficits have made the country fall into the third country with highest deficits and its deficit is almost equal to 4 percent of the GDP of the country (Cook, 2008). d) Economic growth: The economic growth of a country refers to the improvement of the country in terms of the rise in sales of goods and services. It also refers to the increase in the technological developments within the country and a number of other factors. The main factors that affect the growth of the country are the growth in the quality and quantity of the working population, which would in turn mean that the quality and quantity of the production of the country will also better. Improvement sin the capital stock of the country, technological advancements and lat but not the least the improved natural resources. The national income however is the best measure of the economic growth of the country. The economic growth of the country has been the lowest in the last three years, due to the credit crunch in the financial sector. Looking at the above discussion it is very clear the country has been trying to make progression however over the past two years the country has been moving in downward slope and the country has now moved into the recession phase. References Cook, A., 2008, ‘Why the UK External Deficit so large?’, 4 October 2008, UK Bubble, Accessed on 5 November 2008, Retrieved from http://ukhousebubble.blogspot.com/2008/10/why-is-uk-external-deficit-so-large.html Daley, J., 2008, ‘British Economy likely to be Worse than expected in 2009’, 12 May 2008, The Independent, Accessed on 2 November 2008, Retrieved from www.independent.co.uk/news/business/news/british-economy-likely-to-be-worse-than-expected-in-2009-826287.html - 56k DWP, 2007,’Moving towards full employment in the North East’, Department for Work and Pensions, May 2007, Accessed on 4 Novemeber 2008, retrieved from http://www.dwp.gov.uk/publications/dwp/2007/northwest/moving-to-full-employment-nw.pdf Gore, C., and Murray, K., ‘Macroeconomic Policy Objectives’, ACCA Students Newsletter, April 1991, pg 8- pg11 Kirkup, J., 2008, ‘Economic Recovery Still a ling way off, Bank of England chief warns’, The Telegraph, 25 August 2008, Accessed on 7 November 2008, Retrieved from http://www.telegraph.co.uk/finance/economics/2795256/Economic-recovery-still-a-long-way-off%2C-Bank-of-En land-chief-warns.html Labour Market Statistics, 2008, ‘UK unemployment’, 17 September 2008, Accessed on 3 November 2008, Retrieved from http://www.hrmguide.co.uk/jobmarket/unemployment.htm Lawrence, H. and Samuel, H.W, 2008, ‘Annual inflation rates in the United States, 1775-2007 and United Kingdom , 1265-2007’, Accessed on 2 November 2008, Measuring Worth, retrieved from http://www.measuringworth.com/inflation/ Lisbon Strategy, 2007, ‘Lisbon Strategy for Jobs and Growth – Updates on progress’, September 2007, Office of public sector information, Norwich Meadowcroft, J., 2008, ‘Unemployment and the minimum wage: the government cannot escape responsibility’, 17 September 2008, Accessed on 6 November 2008, Retrieved from http://blog.iea.org.uk/?p=94 Read More