Economic Performance: United Kingdom Essay

Question:

Discuss about the case study Economic Performance for United Kingdom.

Answer:

Introduction

The United Kingdom is a developed economy which is selected for this report. In 2014, UK’s GDP had 4.82 % share in the world GDP with 2988.89 USD billion (Trading Economics, 2015). The most significant aspect in this context is that there is excellent environment for doing business in the UK and London is center of the business activities. Service industry plays a significant role in the UK economy contributing to the 78% of overall GDP, which includes banking services, software services, and health care services. UK has good business environment as it has well defined business law, good control on corruption, efficient regulatory bodies. Government policies are favorable for doing business effectively. The country has recorded 2.8 GDP growth rate in the year 2014 that was highest among the G8 economics (Trading Economics, 2016).

Analysis of Production Output Performance

The term real growth domestic product is a measurement of the total value of the economic output. It reflects the value of total good and service that is produced by a county over a period of time (Giudice, et al., 2012). The below table show the real DGP growth rate of the UK:

Year

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

GDP in %

2.8

3.0

3.1

-0.3

-4.3

1.19

1.6

0.7

1.7

2.85

[Source: Trading Economics, 2015]

[Source: BBC News, 2015]

From the above table and graph, it is analyzed that UK’s real GDP growth rate remained in fluctuation in the last decade. In the starting of the decade, GDP was growing well but in 2008 due to world crisis or recession, it was affected badly and turned towards negative zone.

In the same manner, the real GDP per capita refers to measurement of GDP according to average per person in the country (Gilmartin, et al. 2013). The below graph depicts the GDP per capita for United Kingdom for 2006 to 2014.

[Source: Trading Economics, 2016]

GDP growth rate plays a significant role in measuring the economic performance of a country. GDP shows the value of all the final goods and services produced during the over a period of time. In the UK economic, there is a important role of real GDP growth in country economic performance. The result of the GDP growth is seen in the percentage change that also shows how to increase and decrease a country economy (Martin et al., 2016). It also represents the summary of the various government’s policies and projects with including surplus and deficit of the government. Generally, when a country performs better that time its growth rate in the graph go to up and in the opposite of this, in the situation of bad perform its growth rate in the graph shift to down. Along with this, the income of the person is also important in the measuring the economic performance. GDP per capita depicts the relationship between the life standard and extend of economic development in the country (Gilpin, 2016).

The trend rate of the economy refers to the average sustainable performance of the economy over a period of time. The sustainable performance involves all the significant factors such as inflation rate, per person capita, unemployment rate, interest rate, industrial policy and fiscal policy and GDP growth rate of the country. In the last decade, UK GDP was sustainable at great extent, but due to the 2008 economic crisis, it was affected and shifted to down. Further this, in the year 2010, it has coughed the speed again. During this, the average GDP growth rate of UK was remained approximately 2% (BBC News, 2015). The UK economy growth was less compared to other developed countries due to the demand of the goods declined continuously. Along with this, the slow growth rate real estate industry has also some impact on this (Ayres and Voudouris, 2014).

In the last decade 2005 to 2014, the United Kingdom did not have good production output performance. In order to achieve high performance, UK government has taken significant actions for achieving determined targets. The government policies supported for business activities in the country and provided possible help to the new businesses. The government has increased provision amount for research and development activities to improve the technology in the industries (Martin et al., 2016). Finance ministry has also taken effective actions through reducing interest and taxation rates. Share Option Scheme is being implemented for creating a good relationship between companies and their employees (Gilpin, 2016). The UK government is also considering the free economic working environment and providing flexibility to new start up.

Labor Market Analysis

Unemployment Trends:

On the basis of unemployment rates, the unemployment trends of UK are as follow:

(Source: Statista, 2016)

From the above graph, it can be said that in the UK, the unemployment rate has increased from the year 2008 to 2012. In the year 2005, the unemployment rate was 4.8%, which also was the lowest in recent years. It is because, in these years, the companies provide employment for the local people, which was one of the main reasons of the low unemployment rate in the year. But, at the same time, unemployment trend line increased more in 2011 by 8.1% due to the period of recession and lower productivity by the companies. On the other hand, in the year 2012, the jobless people were 2.52 million, which were also maintained the higher unemployment rate in the UK in the year 2012 (Statista, 2016). But, due to intervention of government and jobs provided by the governmental bodies, there is a fall in the unemployment rates in the year 2013-14, which is a good sign of economic development.

Unemployment and Its Types

In general, unemployment is a situation in which an individual is able to work and also willing work but, is not getting the work. According to Banerji, Saksonovs and Lin (2014), in the country, the unemployment refers to the “unemployment rate that is defined as the number of unemployed as a ratio to the labor force”. So, it can be said that unemployment is a situation where the persons, who are able and willing to work may not find jobs or activities in the mean of living. There are different types of unemployment in the country such as frictional unemployment, structural unemployment, technological unemployment, real wage unemployment, voluntary and involuntary unemployment, and cyclical unemployment, etc., which are faced by the governments in their countries (Flemming, 2013).

In this, the frictional unemployment is an unemployment that is due to the normal turnover in the labor market. This unemployment is occurred because people, who are between two jobs or changing their jobs from one to another. On the other hand, structural unemployment refers to the unemployment in which the workers lost their jobs due to displace by automation and their skills are no longer productive or in demand. This unemployment situation is also come due to change in the economic situation. At the same time, the cyclical unemployment occurs due to decline in economy’s total production at the time of recession (Davidson and Matusz, 2010). On the other hand, technological unemployment has occurred when new technology replaces workers with machines.

Unemployment Type in UK

In the UK economy, the main unemployment type is related to the structural unemployment. It is because due to political instability, the government was enabled to develop better polices for the people as well as companies in order to maintain the effective equilibrium among the demand and supply of labor. It is also analyzed that in last decade, the government of UK also failed to calculate to ensure that the number of people willing to do jobs at the market wage (Rashid and Antonioni, 2015). Along with this, the government also failed to ensure that what number of people the firm wants to higher at the market price or wage. It also increased the unemployment rate in the country by 8.1 percent in the year 2011 (Mclaughlin, 2013).

On the other hand, cyclical unemployment is also unemployment type in the UK. It is found that during the recession period of 2008-10, the unemployment level rose to 2.4 million, which also increases the unemployment rate in the country (BBC News, 2016).

Measures to Achieve Employment

The UK government adopted various measures to achieve full employment. In this, the government implemented Conservative’s National Living Wage (NLW), which rebranded the minimum wage, which forces the companies to hire people for the vacant posts. Along with this, to achieve the full employment, the government also using public funds to create jobs, cutting the taxes on jobs and also reforming welfare. These measures help the UK government to achieve the full employment within the country (Cancian, 2016). It is because these measures or ways force the companies to recruit people within the country and contribute in the success of country’s economy in the world.

Price Level Analysis

Inflation Trends

On the basis of inflation rate, the trends in inflation in UK country are as follow:

(Source: Inflation.eu, 2016)

The above graph of inflation in UK depicts that during the year 2005 to 2014, 1.5% is one of the lowest inflation rate for the decade. In the early, in the year 2005, the inflation trends in the UK has remain low but, after this, due to more spend on the goods and services by the local people, the inflation rate has increased by 3.6 percent in the year 2008. It also positively impacted on the GDP rate of the country and provided the benefits to the country. It is also analyzed that due to large flow of money in the economy, the UK achieved 4.5% of inflation, which also resulted in the currency devaluation (Geithner, 2011). But, after this, the government adopted various measures to control on the inflation rate in the country, which resulted in the reduction of inflationary rate in the country as in the year 2014; the inflation rate has decreased by 1.5%.

Inflation and Its Causes

In general, the inflation refers to the rise in the price of goods and services. In the situation of inflation, there are too many buyers and too few goods. In this, the scarcity of goods and the presence of many buyers, the price are increased. At the same time, there are many causes of inflation such as less production, artificial scarcity, taxation policies of the government, shortage of food grains, industrial disputes, technical changes, natural calamities, and productive setups, etc. These causes negatively increase the price of products and services as well as fall in the production that give rise to inflation in the country (Siegel, 2014).

Causes of Inflation in UK

From the analysis of economic situation of UK, it is found that there are various causes of inflation in the country. In this, the lack of control on the money supply is one of the causes that increase the inflation rate in the country. It is because due to lack of money control, banks are enabled to increase their borrowings, which increases the price of products and cause a rise in inflation rate in the country. Along with this, fall in the oil price was one of the main reasons of low inflation in the UK (Belke and Polleit, 2011). In recent years, the fall in the oil price decreased the price of products and services that maintain the low inflation rate in the country.

Measures to Achieve Stable Price

In order to stable the price, the UK government has adopted different measures such as adoption of monetary, fiscal and open market policies. In this, the use of monetary policy helps the government to increase the interest rate, which helped the firm to decrease the spending power of the people to stable the price of goods and services. At the same time, the use of fiscal policy helped the government to increase the rate of tax on goods and services, which helped in cutting the spending power of people in concern to stable the goods and services prices (Comley, 2015). At the same time, open market activities such as selling bonds and securities helped the government to reduce the flow of money in the economy, which also helped in achieving stable price of goods and services.

Conclusion

From the above discussion, it can be concluded that in recent years, the UK has the strong economic conditions that supported the government to attract the investors and companies. The country has low inflation and low unemployment rate, which helped the UK to improve the economic conditions after the period of recession.

References

Ayres, R. and Voudouris, V. (2014). The economic growth enigma: Capital, labour and useful energy?. Energy Policy, 64.16-28.

Banerji, A., Saksonovs, S. and Lin, H. H. (2014). Youth Unemployment in Advanced Economies in Europe: Searching for Solutions. USA: International Monetary Fund.

BBC News (2015). Business. Retrieved from:

BBC News (2016). UK unemployment still at ten-year low, falling by 60,000. Retrieved from

Belke, A. and Polleit, T. (2011). Monetary Economics in Globalised Financial Markets. USA: Springer Science & Business Media.

Cancian, D. (2016). 71% of British businesses say UK government will not achieve full employment in 5 years. Retrieved from

Comley, P. (2015). Inflation Matters: Inflationary Wave Theory, its impact on inflation past and present ... and the deflation yet to come. UK: Pete Comley.

Davidson, C. and Matusz, S. J. (2010). International Trade with Equilibrium Unemployment. UK: Princeton University Press.

Flemming, L. E. (2013). Reading Keys. USA: Cengage Learning.

Geithner, T. F. (2011). International Economic and Exchange Rate Policies: Congressional Report. USA: DIANE Publishing.

Gilmartin, M., Learmouth, D., Swales, J.K., McGregor, P. and Turner, K., (2013). Regional policy spillovers: The national impact of demand-side policy in an interregional model of the UK economy. Environment and Planning A, 45(4), 814-834.

Gilpin, R., (2016). The political economy of international relations. UK: Princeton University Press.

Giudice, G., K?nzel, R. and Springbett, T. eds. (2012). UK Economy: The Crisis in Perspective. UK: Routledge.

Inflation.eu (2016). Historic inflation Great Britain - CPI inflation. Retrieved from

Martin, R., Pike, A., Tyler, P. and Gardiner, B. (2016). Spatially Rebalancing the UK Economy: Towards a New Policy Model?. Regional Studies, 50(2), 342-357.

Mclaughlin, E. (2013). Understanding Unemployment: New Perspectives on Active Labour Market Policies. UK: Routledge.

Rashid, M. and Antonioni, P. (2015). Macroeconomics For Dummies-UK. USA: John Wiley & Sons.

Siegel, B. N. (2014). Money, Banking, and the Economy: A Monetarist View. USA: Academic Press.

statista (2016). Unemployment rate in the United Kingdom (UK) from 2000 to 2015. Retrieved from

Trading Economics. (2015). Retrieved from:

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