Falling unemployment, declining inflation and stronger growth – a better picture for the UK in 2014? But can it last?
After several years of weak expansion, the UK economy is enjoying a relatively strong cyclical recovery
Can the UK continued to experience a recovery in output, jobs and investment?
Will the recovery be balanced and sustainable?
How resilient is the UK? What are some of the major threats to growth in 2014 and beyond?
This is a presentation on aspects of the recent performance of the UK economy. All students are expected to have a good contextual knowledge of recent trends in indicators such as economic growth, inflation, unemployment, the trade balance, interest rates and government borrowing.
Falling unemployment, declining inflation and stronger growth – a better picture for the UK in 2014? But can it last?
After several years of weak expansion, the UK economy is enjoying a relatively strong cyclical recovery
Can the UK continued to experience a recovery in output, jobs and investment?
Will the recovery be balanced and sustainable?
How resilient is the UK? What are some of the major threats to growth in 2014 and beyond?
This is a presentation on aspects of the recent performance of the UK economy. All students are expected to have a good contextual knowledge of recent trends in indicators such as economic growth, inflation, unemployment, the trade balance, interest rates and government borrowing.
AS Macro Question - Falling UnemploymentEton College
This is a revision resource for students taking the EdExcel unit 2 economics paper - suggesting a way of approaching the 30 mark question and scoring high marks for evaluation.
This is a video recording of a live AS macro revision webinar that looked at some examples of external demand and supply-side shocks that can affect countries such as the UK. In the video I explained six key "shock absorbers" - ways in which a country might be better placed to cope with the impact of world demand, supply and financial shocks to their economic systems.
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This comprehensive revision presentation by tutor2u Co-founder Geoff Riley is designed to provide support for AS Economics students (and their teachers) in the final stages of their revision for the Unit 2 paper on macroeconomics.
This is an updated version of a slideshow revision presentation on the way in which different charts are presented in economics exams and some tips for handling the data in your answers.
This is a suggested answer to an exam-style question (for AS macro) on whether the Bank of England should start to raise interest rates to help sustain the UK economic recovery.
Building the Circular Flow of Income & Spendingtutor2u
This revision presentation helps students develop their understanding of the Circular Flow of Income & Spending. It builds the circular flow step-by-step and then provides examples of the circular flow in action. An essential revision presentation for a core macroeconomic concept.
AS Macro Question - Falling UnemploymentEton College
This is a revision resource for students taking the EdExcel unit 2 economics paper - suggesting a way of approaching the 30 mark question and scoring high marks for evaluation.
This is a video recording of a live AS macro revision webinar that looked at some examples of external demand and supply-side shocks that can affect countries such as the UK. In the video I explained six key "shock absorbers" - ways in which a country might be better placed to cope with the impact of world demand, supply and financial shocks to their economic systems.
Preparing for the AS Economics Macro Paper 2012tutor2u
This comprehensive revision presentation by tutor2u Co-founder Geoff Riley is designed to provide support for AS Economics students (and their teachers) in the final stages of their revision for the Unit 2 paper on macroeconomics.
This is an updated version of a slideshow revision presentation on the way in which different charts are presented in economics exams and some tips for handling the data in your answers.
This is a suggested answer to an exam-style question (for AS macro) on whether the Bank of England should start to raise interest rates to help sustain the UK economic recovery.
Building the Circular Flow of Income & Spendingtutor2u
This revision presentation helps students develop their understanding of the Circular Flow of Income & Spending. It builds the circular flow step-by-step and then provides examples of the circular flow in action. An essential revision presentation for a core macroeconomic concept.
This is a revision presentation on the state of the UK economy five months on from the June 23rd Brexit vote.
Overview:
Post-Brexit impact yet to fully materialize in the macro data
Inflation is back with rising commodity prices and a weaker currency since June 2016
Labour market performance remains strong
But scale of UK current account deficit is a problem
Structural weaknesses on the UK supply-side are unlikely to be resolved soon despite renewed focus on infrastructure and industrial policy in the new May/Hammond government
Productivity and skills gaps hurt UK competitiveness
Risk is that Brexit will lower the UK’s trend growth rate if the economy is not “match-fit” post 2019
Lots of external uncertainties as we head into 2017
Here is our recent revision webinar on commercial banks and the UK economy. We look at how commercial banks made a profit (or loss!) and consider the factors that affect how much they can lend out.
http://pwc.to/1lN91cC
Comme tous les mois, l’équipe d’économistes de PwC publie une note sur la situation macro-économique mondiale. Ce mois-ci, focus sur l’accroissement des inégalités dans les pays matures ; les incertitudes concernant la croissance chinoise ; et les prévisions de croissance pour la Grande-Bretagne.
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The debate between former Federal Reserve Chairman Ben Bernanke and former US Treasury Secretary Lawrence Summers has rekindled interest on the topic of "Global Savings Glut". This article gives some interesting insights about the evolution of household savings in India and the way forward.
The Curious Case of Savings-Investment Gap and its Implications for IndiaAshutosh Bhargava
Their has been a remarkable shift in the savings-investment gap at the global level as well as in India. While this has had a tangible impact on global potential growth, the recovery is likely to differ from one country to another. In the Indian context, the recovery in trend growth is likely to be much higher than what is generally peceived and thus requires a more proactive response from policy makers, especially the monetary authorities.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Ireland’s EU-IMF Program: A Safe Harbor in a Perfect StormLatvijas Banka
Presentation by Craig Beaumont, Assistant Director of the European Department, International Monetary Fund at the Conference "Have We Learnt Anything from the Crisis?" in Riga, Latvia. 17.10.2014
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Presentation by Robert Shackleton, an analyst in CBO’s Macroeconomic Analysis Division, at the NABE Foundation 17th Annual Economic Measurement Seminar.
While the world’s economic problems continue, it is essential that we provide our customers with timely information about key markets with which they may be trading or considering future trade.
Our monthly Market Monitor can also help them to understand the risk management measures we are taking as a credit insurer.
The September edition of the Market Monitor is now available on the Atradius intranet and internet. This issue, available in English, Dutch, German, French and Italian - includes coverage of the current business and insolvency environment of the following countries:
Italy – spotlighting on the ICT and food sectors
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France
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In July 2009, the median Expected Default Frequency (EDF) of nearly all major Western economies dropped again compared to the previous month. This may suggest that the perception of risk has declined. However, at best it can only be described as a gradual reversal of the spike that followed Lehman´s failure last year.
In this revision presentation we look at recent trends in UK trade union membership, consider how trade unions can affect both pay and employment and challenge the textbook view that union-negotiated pay increases inevitably have negative consequences for employment.
In this revision presentation we cover key examples of pure and quasi public goods and consider the arguments for and against an increase in government spending on public goods.
Poverty Reduction Policies in Low Income Countriestutor2u
This revision presentation covers some of the main causes of continued high levels of extreme poverty in low and middle income countries and considers a range of pro-poor government interventions designed to increase productivity and regular employment and waged income in formal labour markets.
You don’t need to produce a lot of evidence in your macroeconomics exams but knowing some basic and key facts and figures can make your answers stand out from the crowd! Here is a quickfire journey through twenty important economic numbers that won’t change before the exam – use them to support your answer and impress the examiner!
Microeconomics - Great Applied Examples for Examstutor2u
In this presentation, I have chosen loads of current examples that you might want to use as context in your microeconomics exams. We look at examples from different market structures, recent mergers and takeovers, the world's most valuable companies, the largest employer, unicorn business, de-mergers, the biggest initial public offerings (IPOs) and much else. Hopefully a useful video to go through to add some super examples into your revision notes.
This revision presentation considers the variety of stakeholders impacted by business activity. How will a change in objectives, such as a move from profit maximisation to revenue maximisation have an effect on different stakeholders?
This revision presentation looks at profit satisficing as an alternative objective for businesses. Why might firms satisfice? What are some of the possible consequences for economic welfare and efficiency?
In this short revision video, we look at the substantial productivity gap between the UK and many of the UK’s major competitor countries.
Paul Krugman, the Nobel Prize-winning economist said twenty fives years ago that “Productivity isn’t everything, but in the long run it is almost everything,”
In this presentation we consider the theory of wage-setting with a monopsony employer and the possible impact that a trade union might have on wages and employment. We also look at efficiency wage theory and mutual gains from pay bargaining between stakeholders.
For many economists, the labour market is the most important market of all to study, analyse and evaluate. Like product markets for goods and services, labour markets can also fail. The main types of labour market failure are labour immobility including skills gaps, inequality, disincentives to be economically active, labour market discrimination and the effects of monopsony power of employers.
Updated revision presentation on aspects of behavioural economics and topical issues where behavioural nudges are being used to change the choices of consumers and businesses.
Tata Group Dials Taiwan for Its Chipmaking Ambition in Gujarat’s DholeraAvirahi City Dholera
The Tata Group, a titan of Indian industry, is making waves with its advanced talks with Taiwanese chipmakers Powerchip Semiconductor Manufacturing Corporation (PSMC) and UMC Group. The goal? Establishing a cutting-edge semiconductor fabrication unit (fab) in Dholera, Gujarat. This isn’t just any project; it’s a potential game changer for India’s chipmaking aspirations and a boon for investors seeking promising residential projects in dholera sir.
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Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
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Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
Cracking the Workplace Discipline Code Main.pptxWorkforce Group
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A2 & AS Economics: UK Economy Revision Briefing
1. A2 and AS Revision – April 2013
Developments in the UK Economy
Macroeconomic performance – an overview
Indicator 2008 2009 2010 2011 2012 2013
Real GDP (% change) -1.0 -4.0 1.8 0.9 -0.1 0.9
Consumer spending (% change) -1.6 -3.1 1.3 -0.9 1.1 1.6
Government current spending (% change) 1.6 0.8 0.4 0.2 1.3 -3.0
Capital investment (% change) -4.6 -13.7 3.5 -2.4 1.8 2.5
Exports of goods and services (% change) 1.2 -8.2 6.4 4.5 -0.2 2.4
Imports of goods and services (% change) -1.8 -11.0 8.0 0.5 2.8 2.6
Output gap - as a percentage of potential GDP 2.0 -2.8 -1.7 -1.4 -2.2 -2.3
Unemployment rate - as a percentage of labour force 5.7 7.6 7.9 8.1 8.0 8.3
Fiscal balance - as a percentage of GDP -5.0 -10.9 -10.1 -8.3 -6.6 -6.9
Money market short term interest rates - per cent 5.5 1.2 0.7 0.9 0.9 0.7
CPI inflation - per cent 3.6 2.2 3.3 4.5 2.6 1.9
BoP Current account balance - as a percentage of GDP -1.0 -1.3 -2.5 -1.9 -3.3 -3.5
Source: OECD World Economic Outlook, December 2012. Data for 2013 is an OECD forecast
1. Output: Real GDP remains well below output levels before the recession began. GDP has recovered at a
pace of just 1% annualised since the end of the recession.
2. Fragility: Recovery from the recession has been weak and fragile. Output grew by less than 1% in 2011
and actually fell again in 2012. According to the National Institute for Economic Research, “This period of
depressed UK output is now significantly longer than that experienced during the Great Depression.”
3. Weak private sector: A key weakness for the UK has been the low growth of private sector demand. A
number of factors are holding back consumption including falling real incomes, low confidence, high levels
of existing household debt and the high cost of unsecured loans. Stagnant house prices also a factor.
4. Low investment: Business capital spending has also been low – it collapsed by nearly 14% in 2009 and
has struggled to recover momentum ever since despite many businesses holding record levels of cash.
Lots of businesses seem to be reluctant to give the go-ahead for new capital projects.
5. Credit scarcity: The private sector in the UK has been weak in part because of the lack of credit from the
financial system. Many commercial banks continue to de-leverage (cut their loan books) and business
finance is hard to get at an affordable rate of interest. Several policies have been introduced in the last two
years to encourage more lending, but with mixed results thus far – latest is Funding for Lending
6. Slow export growth: Exports were expected to be a driver of recovery for the UK but after two relatively
good years in 2010 and 2011, the rate of growth of exports sold overseas has dropped once more.
7. Spare capacity: The result of weak growth in the last few years is that the UK economy is operating with a
negative output gap – GDP is well down on potential output and one consequence is a high rate of
unemployment. That said, the 8% unemployment rate is lower than after previous recessions although
long-term unemployment and youth jobless rates are two difficult structural problems
8. Fiscal debt and fiscal austerity: The high level of government borrowing is shown in the table with figures
for the annual fiscal deficit. Peaking at over 10% of GDP in 2009 and 2010, the Coalition government have
made deficit reduction a key pillar of their macroeconomic policies and have focused on spending cuts
rather than tax rises as part of their fiscal austerity programme.
9. Inflation and real incomes: Inflation in the UK has been above the 2% target for CPI over most of the last
five years. External factors such as high global commodity prices, a weaker currency and the rising price of
energy have been three important reasons for inflation staying above target range. Persistently above
target inflation has cut real incomes.
10. Trade deficits: The UK continues to run a current account deficit on the balance of payments, the main
reason for this is the widening trade deficit in goods which rose above £100bn for the first time in 2011.
For more help with your economics revision, visit the tutor2u Economics Blog
2. Growth in the UK Economy
Output for the UK economy in the recession in the years 2008-09 fell by 6% from peak to trough and recovery
since then has been slow and fragile. The UK suffered a deeper recession and has seen a weaker recovery
than many other nations. Several factors help to explain this slow growth:
Falling consumer spending as real incomes fall and people have struggled to pay off existing debts
Low business confidence and weak demand has held back capital investment spending
Export growth has been affected by low demand in the EU (Britain‟s biggest export markets) and
difficulties among exporting businesses in securing export finance / trade credit
Increasingly deep cuts in the real level of government spending and rising taxes as part of the
Coalition‟s fiscal austerity programme
Demand has not responded as much as expected to a period of expansionary monetary policy
including record low base interest rates, quantitative easing and a new credit easing scheme
Restoring growth and re-balancing the economy
Two key macroeconomic aims for the government are firstly to restore growth as a way of generating new
jobs. Secondly the aim is to re-balance the economy away from debt-financed consumption and imports,
towards higher levels of exports and investment (X and I in the AD equation).
Re-balancing policies have included:
1. Currency depreciation (a fall in the external value of sterling against other currencies)
a. A boost to UK export competitiveness – it makes UK unit labour costs and prices lower
b. Improved net trade balance (over time) – providing export demand responds
2. Supply-side support for industry
a. Establish more technology innovation centres
b. Increase number of graduates and apprentices in technical subjects
c. Lower corporation tax – reduced to 21% in the March 2013 budget
3. Improving the supply of credit in the financial system
a. Project Merlin – a voluntary agreement with the banks
b. Credit easing scheme – government loan guarantees
c. Funding for lending scheme (FLS)
d. Green Investment Bank for renewable investment schemes
e. Encouraging new entrants into the retail banking industry
For more help with your economics revision, visit the tutor2u Economics Blog
3. Drivers of growth for the UK
Economic growth is a sustained rise in a nation‟s productive potential. For an advanced high-income country,
the sources of growth are subtly different from a lower-income emerging / developing country. The natural rate
of population growth tends to be lower and per capita incomes have reached a level where rapid percentage
improvements are hard to come by. Growth can flow from several sources – including:
Labour Market
Innovation and
Participation i.e. Capital investment to
Productivity Enterprise -
increasing the boost capacity and
Improvements - an encouraging businesses
percentage of the lower unit costs.
increase in capital and and industries that can
population of working Includes infrastructure
labour input efficiency create high value
age who are investment projects
added products
economically active
The estimated growth of potential GDP for the UK is estimated by economists to have fallen in recent years.
The OECD‟s projected UK trend growth rate (the annual rise in long run aggregate supply) declined from 2.5%
in 2006 to less than 1% in 2010 and 2011. For the period 2012-2014 it is likely to remain below two per cent.
Why might the UK economy have to suffer from a prolonged period of slow growth?
1. Low research and development spending as a share of GDP
2. Falling share of capital investment as a share of GDP (low business confidence)
3. Slow economic growth in the European Union – Britain‟s biggest market for exporting products
4. Volatile and regressive housing sector causing low labour mobility
5. Few small/medium businesses export to emerging countries
6. High long-term unemployment is a major drag on economy – this is creating hysteresis problems
7. A creaking national infrastructure, other countries overtaking in terms of transport networks and
telecommunications capacity and speed
8. Financial system continues to be fragile with low lending to businesses – the credit crunch in the UK
has effectively lasted for six years now
9. There are signs now of a productivity slowdown in the UK economy. Output per worker in the UK at the
end of 2012 was lower than it had been at the end of 2006
10. Fiscal austerity – deep cuts in government spending and higher taxes are likely to be a major constraint
on demand and output in the UK for a few more years yet
For more help with your economics revision, visit the tutor2u Economics Blog
4. UK - Potential GDP and Trend Growth
Source: OECD World Economic Outlook
9 9
Per cent
8 8
7 7
6 Unemployment rate (%) 6
5 5
4 4
3 Estimated UK Trend Growth Rate 3
2 2
1 1
0 0
-1 % Change in Employment -1
-2 -2
-3 -3
-4 -4
04 05 06 07 08 09 10 11 12 13 14
Source: OECD World Economic Outlook
What are the implications for the UK economy and government policy if trend growth remains at a low level?
United Kingdom Labour Productivity
Index of output per hour worked, whole economy, seasonally adjusted
105 105
100 100
95 95
90 90
Index
85 85
80 80
75 75
70 70
65 65
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: Reuters EcoWin
Labour productivity growth in the UK appears to have stalled in recent years – partly this might be the result of
the recession and slow/weak economic recovery. But what supply-side factors might also explain the low rate
of growth of output per hour worked?
For more help with your economics revision, visit the tutor2u Economics Blog
5. Monetary Policy in the UK
Monetary Policy Interest Rates, GDP Growth and CPI Inflation in the UK
per cent
4 4
Percent
Percent
3 3
2 2
1 Real GDP Growth Rate 1
0 0
-1 -1
-2 -2
-3 -3
-4 -4
7 7
Percent
Percent
Policy Interest Rates
6 6
5 5
4 4
3 3
2 2
1 Consumer price index 1
0 0
-1 -1
-2 -2
04 05 06 07 08 09 10 11 12 13
Source: UK Statistics Commission
Monetary policy works by changing the rate of growth of demand for money; changes in interest rates
affect the spending and savings behaviour of households and businesses
Because of the time lags involved in setting an appropriate level of interest rates, in the UK the Bank of
England sets rates on the basis of hitting the inflation target of 2% for the consumer price index over a
two year forecasting horizon
The Bank of England has been independent since 1997
The UK operates within a floating exchange rate system and has done since we left the exchange rate
mechanism (ERM) in 1992. Changes in policy interest rates still have an effect on the demand and
supply of currencies in the foreign exchange rate markets
Since 2009 the BoE has operated a policy of quantitative easing as an extra tool of monetary policy
The policy of ultra-low interest rates
Ultra-low interest rates are an example of accommodatory monetary policy i.e. a policy designed to deliberately
boost AD and output. In theory cutting nominal interest rates close to zero provides a big monetary stimulus to
the economy:
Mortgage payers have less interest to pay – increasing their effective disposable income
Cheaper loans should provide a possible floor for house prices in the property market
Businesses will be under less pressure to meet interest payments on their loans
The cost of credit should fall encouraging the purchase of items such as a new car or kitchen
Lower interest rates might cause a depreciation of sterling boosting the competitiveness of exports
Lower rates are designed to boost consumer and business confidence
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6. Rate of Growth of Bank Lending to UK Sectors
12 month growth rate in lending, seasonally adjusted, per cent
40 40
Annual percentage change
Annual percentage change
30 30
20 20
10 10
0 0
-10 -10
-20 -20
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
05 06 07 08 09 10 11 12
Construction Manufacturing
Hotels and restaurants Total lending to UK businesses
Source: Bank of England
Some economists argue that in current circumstances, the usual transmission mechanism for monetary policy
may have broken down and that cutting interest rates has little effect on demand, production and prices.
Several reasons have been put forward for this:
1) The unwillingness of banks to lend – most banks are de-leveraging (cutting the size of loan books)
2) The incentive to lend when interest rates are at such low levels is reduced
3) Low consumer confidence – people are not prepared to commit to major purchases – recession has
made people risk averse as unemployment rises. Weak expectations lower the effect of rate changes
on consumer demand – i.e. there is a low interest elasticity of demand.
4) Huge levels of debt still need to be paid off including over £200bn on credit cards
5) Falling asset prices – and expectations that property prices will continue to fall
The chart above shows how bank lending to various sectors of the economy has remained weak since 2009. A
negative growth rate means that the annual level of lending is falling.
The Liquidity Trap
In the 1930s, Keynes referred to a liquidity trap effect – a situation where the central bank cannot lower nominal
interest rates any lower and where „conventional‟ monetary policy loses its ability to impact on spending. Paul
Krugman has defined the liquidity trap as “a situation in which conventional monetary policy loses all traction.”
When interest rates are close to zero, people may expect little or no real rate of return on their financial
investments they may choose instead simply to hoard cash rather than investing it. This causes a fall in the
velocity of circulation of money and means that an expansionary monetary policy appears to become impotent.
This means that different approaches are called for in order to stabilize demand in an economy on the verge of
a depression including quantitative easing
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7. Sterling Exchange Rate
The UK operates with a free-floating exchange rate
The external value of sterling is determined by market forces of supply and demand
Sterling depreciated by more than 20% from late 2007 through to the end of 2008
The effective exchange rate index measures the overall value of sterling against a weighted basket of
leading currencies
Since 2009 sterling has been fairly stable although there was appreciation in the first half of 2012
A lower exchange rate was a helpful boost to the UK‟s competitiveness during the worst of the financial
crisis and the subsequent recession
It has helped to achieve a modest re-balancing of the economy towards exports, but the expansionary
effect of a lower pound has been limited by a number of other factors:
o High income elasticity of demand for imported goods and services
o Some weaknesses on supply-side of the economy (i.e. research / investment) – a fall in the
exchange rate does not fundamentally change a country‟s non-price competitiveness
o Many UK businesses are finding it hard to finance a rise in exports (credit squeeze)
o The majority of UK exports go to slow-growing countries in Europe and USA
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8. Fiscal Policy in the UK Economy
Fiscal policy has become a crucial battleground in economic policy-making in the UK. The current Coalition
government has introduced a policy of fiscal austerity in a bid to cut the size of the annual fiscal deficit, limit the
rise in national debt and protect the UK‟s triple AAA credit rating in global capital markets.
UK Government Spending and Taxation
Measured as a percentage of national income (2010-11 is a forecast from the OECD)
52.5 52.5
Per cent of GDP
Per cent of GDP
50.0 50.0
47.5 47.5
Total Government Spending
45.0 45.0
42.5 42.5
Total Tax Revenue
40.0 40.0
37.5 37.5
35.0 35.0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Source: OECD World Economic Outlook
Government spending as a share of GDP peaked at over 50% of GDP in 2009 and is forecast to fall to 46% by
2014. The tax burden (measured by the share of total taxes in GDP) has remained relatively constant. Some
taxes have risen (e.g. VAT to 20%) whilst others have fallen (including cuts to corporation tax). The difference
between G and T as a share of GDP tells us the annual budget / fiscal balance. For example a fiscal deficit of
6% of GDP is forecast for 2014.
The size of the UK fiscal deficit is determined by a number of factors:
Rate of unemployment and the rate of inflation – more people out of work causes welfare bills to rise,
inflation causes an annual increase in most benefits although the government now seeks to cap annual
rises to 1%
Growth of real incomes and profits – slow growth and weak profits hits tax revenues flowing into the UK
Treasury
Scale of government spending including welfare – the coalition prefers cuts in real spending on public
sector services over tax rises as their strategy for cutting the fiscal deficit
Effects of changes in tax rates on both direct and indirect taxes
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9. For more help with your economics revision, visit the tutor2u Economics Blog
10. For more help with your economics revision, visit the tutor2u Economics Blog