Impact of Recession on UK Economy

Impact of Recession on UK Economy

Introduction

The global financial crisis has hit the economies world over. The case of the UK economy is no different. As a consequence of the recession there is a need to regulate and restructure the economy. This is the only way for sustainable growth. A few sectors of the economy have suffered more than the other sectors. These include asset management, wholesale finance and housing finance. This is so because the financial sector is one of the key sectors of the UK economy. The UK economy slowly started to recover from the recession at the start of 2010. Before that the trend in the economic growth remained largely contractionary (Seager 2008, p. 6). One of the reasons for this contraction was the ever high rate of unemployment. This jobless rate is the highest in the past 17 years. This was a serious disappointment as one in every five person was found to be searching for a job. The government took several initiatives to support the job search of about 721,000 unemployed people (Eichengreen, 2011).

Discussion

Economic conditions of United Kingdom

The Credit Crunch and Housing Sector

The effect that the credit crunch had on the housing markets was felt through the inter-related effects that were seen on development, occupational demand and investments. The effects on the housing investment market were the first to appear. They resulted due to the sharp changes in the activities of pricing and investment.

With the advent of the credit crunch, it is clear that 2007 was the peak year in the latest housing market cycle, in all countries and regions of the United Kingdom. By then housing prices had risen to unprecedented levels relative to incomes. However, this was partly offset (and fuelled) by lower interest rates. Nonetheless by 2007, mortgage costs for the first time buyers had risen, on an average to one third of an individual's full time earning.

Affordability declined throughout the United Kingdom. Some local areas faced particularly acute affordability pressures. These include the coastal areas of South West England and particularly some areas of central London (Shostak and Houghton, 2008, 126). However, private rents were substantially lowered than the costs of house purchase. For UK as a whole, rents for 2/3 bedroom dwellings in 2007 were only 2/3 of the mortgage costs for the same dwelling. The phenomena to buy a private rented house contributed significantly towards the rise in house prices. This, at the same time, revitalized the private renting market and improved the availability and quality of dwellings available for rent (Spilimbergo, 2008).

Credit crunch has led to a collapse in the housing market and a wider economic recession. The sharp reduction in funds for mortgage advances and the restrictive terms on which they were offered went hand in hand with a fall in house prices and a rise in the level of repossessions. The Council for Mortgage Lenders initially predicted that there would be about 75,000 repossessions in 2009, although subsequently this figure seems over ...