At present, it is widely considered that the global economy is on the mend. The worldwide financial recession, originally caused by the negative impact of American sub-prime crisis in 2008, has been with the strong and timely help of financial aids from different countries.
While financial performance of the whole world is changing into a period of economic resurgence, the summary of the World Bank (2010) also stated that "acute phase of the financial crisis has past and a global economic recovery is underway". As one of the disastrous countries, the United Kingdom, was undergoing a drastic depression from early 2008 to the fourth quarter of 2009 (the Guardian, 2009).
With the aim of analyzing the UK economic performance, three key indicators which are GDP, unemployment and inflation as well as a part of British policies consists of fiscal and monetary policies will be entirely focused on in the following paragraphs.
Record of the UK Recessions - GDP drop since early 20th century
Source: the Guardian, 2009
The United Kingdom, right now, is ascending an upturn of positive value of GDP (Gross domestic product) which is an essential measure not only for the overall economic performance but also for the total output of services and goods as a whole in a nation (Anderton, 2006).
It finally had a slight rebound of 0.4% in Quarter 4 of 2009 after an aggregate 7-quarter drop-off of 6% of GDP since the year of 2008 (the Guardian, 2009). To compare with the previous British recessions, this time is the worst one since the 1930s as the graph shown above (the Guardian, 2010).
In other word, these figures reflected that less output had been generated due to the less confidence of consumption and lower income.
The United Kingdom unemployment rate 2008-10
Source: Office for National Statistics, 2010
The unemployment rate, which is the rate of measuring how much percent of people lose their jobs, is still remaining at a relatively high level (Office for National Statistics, 2010). Unfortunately, after a sharp rise of unemployment rate in 2008, the lowest point of 5.2% climbed to the peak of 7.8% (ONS, 2010), and it is likely to level off between 7.0% and 8.0% for some time.
Owing to the sale and price of housing dropped down in America while the economic bubbles blew out, people could not pay back money for their mortgages, which leads to a situation that banks could not get their money back on times and then lower public credit.
Subsequently, banks faced bankruptcies and the rest of commercial banks stopped investing or lending to companies and individuals in order to inhibit more losses. Therefore, companies could not borrow money from banks so that it led to a burst of new bankrupts of companies and resulted in a situation of firing more employees.
The following phase is that the unemployment rate faced a sharp rise or workers have a lower disposable income than ever. Continuously the steep drop of consumption was happening, which also caused a new burst of unemployment. That is the reason why the lower employment and deflation have been happening, which is known for vicious cycles.
For the purpose of higher efficiency, the UK government pressed the button of using reserve fund of 200 billion (the Bank of England, 2010) to give more loans to companies for the sake of raising output and lowering unemployment rate.
RPI (retail price index) & CPI (consumption price index) in 2010
Source: Office for National Statistics, 2010
Another way of considering the economic state is the degree of inflation measured by RPI (retail price index) and CPI (consumption price index) even though the UK government used it as a way of easing the recession. The British economy was suffering a deflation while the RPI rate declined to -1.5%, and CPI rate declined to 1.0% from 5.0%.
In addition, a huge gap between Aug of 2008 and Feb of 2010 is shown in the graph above. Mild inflation could ease the deflation and economic crisis (Anderton, 2008). As a result, the central bank had enforced the strategy of quantitative easing, which is known as printing more money into the market.
Hence, the bent curve reflects a transitional period of the UK economic state that has been going much stably.
What is more, to deal with the economic problems, the United Kingdom parliament passed several fiscal policies. The first step was to adjust the primary bank rate down to 0.5% (the Bank of England, 2010). After the new fiscal policies were performed, people were likely to withdraw their money from banks to purchase more goods in order to stimulate the consumption, increase of the supply and employment as well as further develop the performance of economy.
Secondly, in order to increase the disposable income, British government decreased the income tax rate as well as VAT rate, and raise the tax allowance (the Guardian, 2009).
In order to not only stimulate the consumers' confidence, consumption and output or supply for the market but also secure and stabilize the recovery of British economic system, the UK government set up a historically high budget of 704 billion pounds for 2010-11 which rises by 34 billion compared with 2009-10 (HM treasury, 2010) and turn up the personal allowance (Direct Gov, 2010).
Finally, the UK government determined to ensure the capacity of the whole nation and to secure the stabilization of the economy.
In conclusion, admittedly, the UK government's policies are working efficiently, but the UK economy still shows some unpredictable points of it, for instance, the lower employment, the vulnerable confidence of consumption and unpredictable inflation. Will it work stably in the future is definitely a long-term question.
For another point, the way of being a stable condition of economy is still long, to be frank, because of the lower GDP, higher unemployment and uncontrolled inflation, the United Kingdom is likely to stay on the edge of recession so that it is not worth being too confident about the unknown obstacles on the road of recovery.
Not long from now, in 2010 and 2012, the World Expo and the Olympic Games will be held in Shanghai and London respectively as great opportunities to approach success and from the income of the high technology industry and the tertiary industry. Hence, on present trends, things do, indeed, look hopeful.
