U.K. Economy

U.K. Economy

The UK government currently has four main macroeconomic aims that it

is pursuing. These aims are those of low unemployment, low inflation,

and high and stable economic growth as well as a favourable balance of

payments current account position. This essay will concentrate on the

government’s success in the first three of its aims listed above and

how these macroeconomic aims can or have been achieved using fiscal

and monetary policy. Fiscal policy is used to affect aggregate demand

by altering taxation and government spending; monetary policy also

affects aggregate demand by the manipulation of interest rates and the

supply of money.

Economic growth is the prime measurement of a country’s economy as it

reflects improvements in standards of living. It is defined as an

increase in the productive potential of the economy and is usually

measured in terms of rate of change of real gross domestic product

(GDP), which is the value of output produced within an economy over 12

months. It must be remembered that for each year, the percentage change

in GDP is shown therefore any positive figure will represent a growth

in the annual GDP level.

The swift growth the UK experienced from 1982 to

1988. This growth in GDP decreased from the 5.2% level experienced in

1988 to 2.2% in 1989 and fell to its lowest in 1991 at –1.4%. This is

due to the recession that hit the UK during this period. After the

negative year of growth in 1991, the UK economy began its recovery

from the recession and consequently there was a healthy growth in GDP

from 1992, which lasted up until 2001. In 2000 the GDP growth figure

stood at 3%, this is mainly due to the increase in consumer spending

and capital investment that occurred during this year. The most

satisfying aspect of this economic growth is the fact that at the time

it coincided with the achievement of the government’s second

macroeconomic aim of low. Last year however the economy grew by just

1.7%, which is the lowest for a decade. This low rate of UK economic

growth coincided with the position of the manufacturing sector, which

in 2002 was in a deep recession and is to the manufacturing industry

to call for a further interest rate cut, to help push the value of the

pound down, so that UK manufacturing export demand can increase.

Inflation is the general a...

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...enting the economy from entering a recession. Nevertheless this

is where we can see the difficulties in making these policies due to

trade offs that occur, as a rate cut in theory should lead to the rate

of inflation to rise even further however this is a risk worth taking

to end the current manufacturing recession as well as strengthen

consumption even further. Revising an expansionary fiscal policy

(fall in taxation, increase in government spending) would also be

advisable. This will further boost aggregate demand and as supply

side economists may argue, shift aggregate supply to the right

effecting growth (a rise) unemployment (a fall), inflation (a fall),

thus these goals to be met. It must be remembered that both policies

have time lags connected with them, in particular fiscal policy, for

which they are greater. A decision to change an instrument must

therefore be consistent, as it may not always have the desired effect

instantly.

Bibliography

www.statistics.gov.uk

www.bized.ac.uk/

www.hm-treasury.gov.uk

http://www.tutor2u.net

www.telegraph.co.uk/business

http://news.bbc.co.uk/1/hi/business/economy/default.stm

Economics – Sloman.