ECONOMIC ANALYSIS

Economic Analysis: United Kingdom

Economic Analysis: United Kingdom

Introduction

The purpose of this study is to expand the boundaries of our knowledge by exploring some relevant facts and figures relating to the macroeconomic position of United Kingdom. In this paper, the author will discuss what policy options might be adopted (or have been adopted) by the monetary and fiscal authorities in the past year and examine what should the monetary and fiscal authorities be doing over the next year. The UK, being an influential member of the EU and one of the largest economies in the world, remains a significant economic and political force. The relative economic decline experienced by the country throughout most of the 20th century has been reversed in recent years, with the UK riding out the global downturn relatively well. Its membership of the UN Security Council, the EU, the North Atlantic Treaty Organization (NATO), and the Group of Eight (G8), along with its continued strong links with its former colonies through the Commonwealth and robust cultural and security ties with the US, place it in a unique position within the global community (Pain, 2009, pp. 34-39).

However, with unprecedented strains appearing in the Euro-American alliance in response to the Iraq war, the UK's efforts to keep a foot in both the European and American camps are proving increasingly challenging. In June 2007, Gordon Brown took over the role of prime minister from Tony Blair. Mr Brown, considered by some to be one of the country's most successful chancellors of the exchequer, was criticized for the policy measures undertaken to fight economic recession. The Labour Party, having formed the government for more than a decade, failed in arresting recession. Economic conditions worsened in 2009, with GDP contracting by 4.9%, and a mounting deficit and rapidly increasing unemployment rate pose challenges to the present Conservative government. Although the previous Labour administration introduced new welfare measures to tide over the economic crisis, their long-term implications are expected to be serious with increasing government borrowing (Pain, 2009, pp. 34-39).

The government's policies in the technology sectors are proving to be obstacles in two ways, with strict regulatory policies on indigenous innovations and liberal policies in niche sectors giving up competitive advantage. However, legislation affecting businesses is on the whole welcoming and will help in attracting foreign direct investment (FDI) into the country.

Discussion & Analysis

Growth in the economy, but high fiscal deficit remains a concern

The country's economy attained a high growth rate of 2.8% in 2007, but economic deceleration began in 2008 when the GDP contracted by 0.1%. In 2009, the economy contracted by 4.9% with falling consumption and investment demand (www.bankofengland.co.uk).

External demand has also remained weak because of a slowdown in the global economy. The economy then recovered in 2010, achieving albeit sluggish growth rate of 1.6%. Furthermore, economic problems have adversely affected the country's employment rate. Although the fiscal deficit fell from 3.4% of GDP in 2003 to 2.7% in 2007, it increased to ...