MACROECONOMICS

UK Economy Analysis

Economic Growth, Inflation, and Interest Rates

Bank of England Policy on Inflation Rate

UK Economy Analysis

Economic Growth, Inflation, and Interest Rates

Introduction

With feeble rates of growth, there are mounting fears that the United Kingdom economy lacks the strength to withstand the government's tough austerity measures. The budget deficit - already one of the largest among industrialised countries -reached 12.6% of GDP in 2009. In 2010, the deficit was put at 11.1-11.5% (UKNS, 2012a).

Economic Structure, GDP Growth

Agriculture is of limited importance, despite the fact that the country is fully self-sufficient in most basic products. Agriculture employs just 1.5% of the workforce. Farms tend to be larger than the European average. The manufacturing sector makes up 9.5% of GDP and employs 10.0% of the workforce (UKNS, 2012a). Car makers and other heavy industries were most severely impacted by the recession. The government implemented a £2.3 billion package to support automobile makers. Manufacturing output has risen modestly in 2011 although activity in the construction sector continues to decline. Output of manufacturing has stagnated in 2011 (UKNS, 2012a).

The services sector accounts for 70.6% of GDP. Financial services - the most dynamic part of the sector in recent years -suffered most during the recession. A modest recovery was mounted in 2010 when real GDP rose by 1.4% (UKNS, 2012a). The deficit was pushed even higher as a result of the bailout of large banks. Graph presented below shows the changes in the total GDP of the country.

Impact of the Economy Growth Changes

The economy grew faster than the average for the Euro-zone throughout most of the previous decade. However, an abrupt slowdown began in 2008 and the country entered a recession in 2009. The UK was harder hit by the Great Recession than many countries because of its large financial sector. The country's fiscal position had already been deteriorating for several years. The number of unemployed also rose by 50% during the recession with 800,000 jobs being lost (IMF, 2012). Graph presented below highlights the decrease in the employment rate of the country from the year 2009 onwards. Youth unemployment also reached a record high during 2010. Part of the problem in the job market is that workers' skills do not match businesses' needs. Britain's austerity programme also calls for 500,000 public sector job losses in 2011-2015 (IMF, 2012).

Graph presented below shows the overall unemployment rate in the country. Unemployment level in the UK remained relatively constant at 5.1% on average since 2001 to the year 2008. However, a significant incline has been observed in the unemployment level of the country following global economic recession that resulted in increasing the job loss in the country; hence increasing the overall unemployment from 5.6% to 7.6% in the year 2009 (IMF, 2012).

Graph presented below highlights the unemployment rate of female based on the changing economic conditions of the country. This graph shows that female unemployment rate has remained relatively constant since 2001 to 2007, but lower than male. However, a remarkable incline has been observed in the female ...