Challenges faced by Uk economy

Topics: Inflation, Macroeconomics, Tax Pages: 8 (2128 words) Published: October 17, 2014
Challenges faced by the UK economy

Introduction
Bank of England, responsible for key interest rates.
Pound sterling is the currency, world’s 3rd largest reserve currency after USD and Euro. Country with literacy rate of 99% for both genders
Member of Commonwealth of Nations, European Union, G7, G8, G20, IMF, World Bank, World Trade Organization, UN Aerospace, automotive, pharmaceutical
Players heard of – Rolls Royce, Jaguar, TESCO, Major F1 teams, GSK

History

Independent, developed, and international trading economy that was at the forefront of the 19th-century Industrial Revolution. 
War set back the manufacturing sector.

Post-war recovery was relatively slow, and it took nearly 40 years, with additional stimulation after 1973 market crash 
The United Kingdom’s chief trading ties have shifted from its former empire to other members of the EU, which account for more than half its trade in tangible goods.

Offshore exploration since 1967

During the 1980s the Conservative government of Margaret Thatcher pursued the privatization, or denationalization, of publicly owned corporations that had been nationalized by previous governments.
Loss of 1000s of jobs. 
During the 1980s and ’90s, income disparity also increased. Unemployment and inflation rates were gradually reduced but remained high until the late 1990s


Overview
6th largest economy, 3rd largest in Europe
In descending order - England, Scotland, Wales, Northern Ireland 4th largest exporter as well as importer. Export – Germany, US, Netherlands, France, Republic of Ireland, Belgium. Import – Germany, China, Netherlands, US, France, Belgium 2nd largest stock of outgoing as well as incoming FDI – majorly from Japan and USA, and majorly into Asian economies. Incoming – $1.321 trillion. Outgoing – $1.884 trillion Considered most globalized economy

GDP Contribution
Agriculture 0.7%
Construction 6.3%
Production 15.2%
Services 77.8%

Current Situation
Mark Carney, the Governor of Bank of England wants to keep the interest rates high till the time unemployment doesn’t fall below 6%. On the other hand, inflation is now above target of 2%, so people also expecting the rates to be increased The 2008-09 crisis affected the banks severely, and now they have become overcautious leading to a fall in the lending rates by 3% since last year, and expected to fall another 5% next year.

Eurozone’s growth forecast at 0.8%, next year 1.3%
Global growth expected at 3.3%, next year 3.8%, both still termed too optimistic by IMF, despite revising it the 2nd time this year UK’s expected growth rate 2.9-3.1%, revised from 3.8%. 2013-14 growth was 1.7%
Exports 1.6% growth, revision from 2.2%. All above figures are for 2014-15 fiscal

The dilemma
Economy growing despite loans reducing. Shows bad state of manufacturing sector, not good in long run Key interest rates can’t be increased as unemployment still high
And can’t be reduced as it will increase inflation

Real Growth
The nominal figures may fool many, so we show the growth in Real GDP Since the start of 2013, the UK economy has experienced positive economic growth – one of the relatively best performances in Europe. However, Real GDP is still fractionally below its pre-crisis peak of 2007. The recovery has been stronger in the service sector than manufacturing and industrial output. There are fears the UK recovery is still unbalanced – relying on government spending, service sector and ultra-loose monetary policy.
And that it might worsen once the key interest rates are increased Real GDP is not yet back to the pre-crisis level.

The figures shown by us are as per the data currently available in the public domain. And so, it is worth bearing in mind that sometimes economic growth statistics get revised at a later stage.
 Factors affecting growth

Self-explanatory

Challenges
Unemployment
Define and introduce the problem on your own. Explain the diagram Reasons
Recession – causing cyclical, demand...
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