ECONOMIC ANALYSIS

Economic Analysis



Economic Analysis

Introduction

The assignment explains the economic recession in the UK and its impacts on the UK's government. The rise in the interest rate has brought inflation in the economy and the GDP growth rate of the country also falls. The instability in the economy of UK also weakens its trade relations with other countries. There is a need of making some changes in the Monetary Commission Policy of UK so that they can effectively overcome the problems occurring in their economy.

Discussion

The assignment includes an analysis of the current economic situation in the country. It covers the following aspects:

The Effects of Inflation on mortgage holders and savers:

The new guidance policy of Bank of England has been changed as they are facing euro crisis. The bank rates have no more chances to increase and this has severely affects the mortgage holders and the savers who have money in the banks (Salmon, 2013, pp 1-2). The mortgage holders have to pay extra money to the bank. The rise in the interest rates and inflation also affects the bank savers but it has positive effects on the savers as they get higher rate of interest on their investments. The UK economists have informed the mortgage holders and savers about the increase in the interest rate. As the inflation rises, then the people will do less investments in the economy.

The MPC keep interest rates low even when inflation was rising

The bank's Monetary Policy Committee was advised to keep the inflation rate at 2% for the next two year. They have made this policy for controlling inflation rate in the country. The MPC stated that they have kept the interest rates low as the deflation rate is a threat to the weak economy. MPC has also kept interest rates low and increase the ...