An analysis of the latest figures for key economic indicators and the factors which have affected these indicators. This should include the figures for unemployment, inflation and economic growth.
The unemployment rate is a very important indicator of the overall health of the economy. Currently the unemployment rate is at 7.8% (Office for National Statistics, 2012). However, this figure does not affect the population equally. Different segments of the population have different employment rates. Furthermore, the unemployment rate does not include people that are not actively seeking employment. In the chart these people are considered to be “inactive.” Another interesting item listed in the report is that the unemployment rate for the youth demographic was falling due to a record number of 16 to 24-year-olds being enrolled in some type of educational program.
Employment in the UK has suffered from recession. In 2008 there was a global recession in the United States that spread throughout the world and the UK was not immune. The global economy is highly intertwined and when on area of the world is experiencing economic difficulties this can have effects for the rest of the world. However, since the recession, the UK has made slow but steady progress in lowering the unemployment rate. Much of this has been through fiscal stimulus.
Figure 1 – Employment Breakdown (Office for National Statistics, 2012)
The UK uses a (CPI) as a measure of consumer price inflation. The CPI is based upon a basket of goods and services that people usually purchase. The basket is full of all kinds of different items that people generally consumer on a regular basis such as food, housing, and utility services. In December of 2012 the CPI was measured at 2.7% which was the same rate that the country experienced three months in a row. However, the prices for the items in the basket did not all stay the same; the just offset each other. For example, the price of gas and electricity bills rose while the price for airline travel rose at a much slower rate (Office for National Statistics, 2013).
Figure 2 – Consumer Price Indices December 2012 (Office for National Statistics, 2013)
A 2.7% inflation rate is fairly low. If the government choses some kind of monetary stimulus to help economic growth then this rate could rise substantially such as in 2010 and 2011. However, the government representatives must try to balance price inflation with other objectives. If the Bank of England injects cash into the economy by purchasing government bonds then the increase of cash in circulation often raises prices and this will be reflected in the CPI. People will have money to pay for goods and as a result prices generally rise through the laws of supply and demand. If there is more money in the supply then the demand will rise and suppliers will adjust their prices accordingly.
The UK economic growth index, index of production, shows some pretty negative figures relative to growth. For example, production fell by a seasonally adjusted basis by 2.4% in November 2012 when compared to November 2011 and manufacturing fell by 2.1% (Office for National Stastistics, 2012). This has ushered in many fears of another recession. Britain’s economy has only just emerged from a double-dip recession in the third quarter of 2012, when it recorded 1% growth (Kirka, 2011). A recession can often build on itself. Once consumers lose confidence in the economy then this can reduce consumer spending. Consumers will hold off on purchases until they feel comfortable with the economic environment. Therefore once the threat of a recession emerges then the situation can be made worse by the public’s perception of uncertainty.
Figure 3 – Percentage Changes (Office for National Stastistics, 2012)
2. An explanation of fiscal and monetary policy with some examples of current policy.
Fiscal policy refers to how a government adjusts its level of spending. Governments can spend money on a variety of things. They can employee people to work on various activities; the government can invest in things like health care, infrastructure, or education. These expenses can significantly impact the country’s economy because they have a multiplier effect on the health of an economy. For example, when the government pays an employee then that employee has money to spend on housing, food, entertainment, and other items which helps to further the entire economy.
Monetary policy works much differently than fiscal policy. This policy is determined by a federal bank or central bank that can change the money supply through activities such as issuing bonds or changes in the fractional reserve limits or system. This acts to make more or less money available to the economic system. When more capital is available the consumer and business can have more money to invest in various things.
There is a hot debate about what types of policies should be used to move the UK forward and away from another recession. Mike Wickens from the University of York believes that the economic problems are a result of a balance sheet crisis together with a structural deficit based on an unfunded welfare program while others feel there should be tighter monetary policy (Financial Times, 2013). Since many of the experts disagree on the subject, it is incredibly to get a clear sense of what should be done to help the economy. Much of the discussions on the economic policies that the UK government can implement seem to be highly subjective and depend on various perspectives.
Financial Times, 2013. Question 3: Fiscal Policy. [Online]
Available at: http://www.ft.com/cms/s/0/1115c770-545a-11e2-9d25-00144feab49a.html#axzz2IAShLpER
[Accessed 1 January 2013].
Kirka, D., 2011. UK recession fears grow as manufacturing drops. [Online]
Available at: http://www.usnews.com/news/business/articles/2013/01/11/uk-manufacturing-output-contracts [Accessed 11 January 2013].
Office for National Stastistics, 2012. Index of Production. [Online]
Available at: http://www.ons.gov..pdf
[Accessed 11 January 2013].
Office for National Statistics, 2012. Labour Market Statistics, December 2012. [Online]
Available at: http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/december-2012/statistical-bulletin.html
Office for National Statistics, 2013. Statistical Bulletin. [Online]
Available at: http://www.ons.gov..pdf