INFLATION

Inflation

UK inflation

Introduction

Countries such as the United States and United Kingdom have their central banks. This helps them to provide loans to countries across the world. The bank, Northern Rock, is a good example of how the economy of UK has been affected by the credit crunch. Northern Rock was a bank based in United Kingdom having a large number of investments in the sub-prime market of United States. Due to the falling of the sub-prime market, the banks lost huge amounts of money. In the year 2007, if Northern Rock was not bailed out, it would have had to shut down its operations.

The economy of U.K is said to be the world's biggest economy system and it possesses mixed economy in which both public and private sectors play their parts to strengthen the economic system of the country. This type of economy is gradually reducing the public ownership in U.K for last two decades. There is a mixed economy system in UK. Market makes most of the decisions such as the purchasing of goods at market means that you give your money for the goods and services you want to purchase. On the other hand government also makes some decisions for e.g. building of infrastructures like schools, roads, medicines provisions in hospitals etc.

The UK economy has a high degree of dependence on foreign trade and integrated into the global economic relations. The value of British exports equivalent to 25% of national GDP. In terms of foreign trade of goods and services to the UK is among the leading world powers, taking 6th place among world exporters in terms of exports of goods and 2nd-largest service export. The share of imports of goods and services in domestic consumption is even higher and closer to 40%. UK, a member of the World Trade Organization and the European Union, largely builds the legal regulation of its foreign economic relations in accordance with their requirements, in particular, the use of preferential tariffs and access to markets, and the most favored mechanism for resolving trade disputes.

The inflation figures announced on November 13th are very bad news for the UK coalition Government. Some increase in the annual cost of living had been expected but not a jump to 2.7%. It is now worrying that the annual rate of inflation has been consistently above its 2% target. This paper is going to discuss the reasons put forward for this rise and provide an evaluation of the options (policies) that the Government can use to try and bring an end to this consistent high rate of inflation.

Discussion

A higher level of inflation was observed during the years of the 1970s and the years of the 1980s, when compared with the inflation rates of the previous periods in history. After remaining on a high for a period of two continuous decades, the inflation rate was lowered by implementing a measure that helped in tightening the monetary policy in the coming years (Robert, 1988). However, apart from this implementation of the tightening ...