The UK economy and economic policy
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Presentation on the UK economy for the previous years and a forecast for the future.
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The UK economy and economic policy
- 1. Student Name & ID: Rati Chichinadze Akinyemi Ogunsanya Shuai Xin
- 2. UK labor costs per hour have improved in recent years in comparison with other EU countries, the USA, and Japan. (OECD, 2011)
- 3. (OECD, 2011)
- 4. Skills shortage Flexible labor market (OECD, 2013)
- 5. World economic crisis 2008 Lehman Brothers shock leading to a collapse in demand Lack of investment Economic contraction.
- 7. (ONS, 2013)
- 9. Collapse in demand after the financial crisis Loss of competiveness Oil prices
- 10. Unemployment not too high due to a relatively flexible labour market Labour is relatively cheap as real wages falling Pricing people back into work
- 11. 0 1 2 3 4 5 6 7 Aug Nov Jan May July Dec Feb April Oct Nov Dec Jan Feb Mar Mar 3 9 11 10 5 6 7 10 8 6 4 8 5 5 7 2006 2007 2008 2009 2013 Official Bank Rate (%) Official Bank Rate (%) (Bank of England, 2013)
- 12. Bank drops rate to 0.5% in March 2009 Done to shore up confidence and ‘unfreeze’ credit markets Spur investment and consumption Could have effect of keeping struggling or “zombie” businesses alive (Pym, 2012). Risk of misallocation of resources and inhibiting investment and consumption (The Economist, 2013) Broken Transmission Mechanism
- 13. Quantitative Easing embarked upon in the March 2009 (Bank of England,2010). £200 billion of gilt (government bonds) purchases began. Quantitative Easing by £375 billion Flattening the yield curve of government securities pushing investors to other assets Increases in wealth effect boosting consumption.
- 16. Inflation drops after March 2008. Lehman Shock hits in September 15 2008 Inflation collapses Collapse in demand Collapse in oil prices from an all-time high of over $140 to a low of below $40 and price spike in 2011 (Trading Economics, 2013)
- 17. MV=PY Inflation as M4 lending and money velocity collapsing to just under 0.25 (Butt et. al., 2013)
- 18. Contractionary fiscal policy (Bank of England, 2013) Increase in VAT from 17.5% to 20% Other tax increases Effects on incentives Reduction in purchasing power
- 19. (ONS, 2013) Balance of payments over 3 year period
- 20. Deficit-UK export firms lack of competitiveness Unit labor cost UK productivity
- 21. Economic Recovery? Economy grew 0.3% in Q1 Flat lining of the economy Reduction in consumer debt and corporate debt Bank debt solved addressed Increase in capital expenditure to boost long- run productivity and production capacity
- 22. Expansionary fiscal policy mainly through directed tax cuts to improve incentives for investment. Effects of those on the IS-LM curves.