The Current State Of The Uk Economy

An overall economic investigation by BBC shows that the UK economy has been suffering a recession since 2008. However, evidence has shown a recovering tendency in British economy in the recent three months. According to Anderton (2008), the economic growth is a primarily indicated by Growth Domestic Product (GDP growth), which represents the increase of total output of the nation economy. As a matter of fact, the problem of deflation which is resulted from a decline in the consumer price index and the retail price index (CPI and RPI, both of which are used to measure the average price of productions), has been ended. Reported data has shown a slow increase in CPI, hence an acceptable rate of inflation. Although current state of the UK economy is still in a dissatisfactory situation, its prospect is bright. This essay will examine the UK recovered economy based on four aspects which collectively reveal the recovering economic state: the increased inflation rate, the declined unemployment rate, considerable current balance situation and the GDP growth.

First of all, welfare policies carried out by the UK government have successfully prevented a further deflation. The Office for National Statistics stated that there had been an interest reduction ranging from 7.3 percent to 0.2 percent on mortgage payments since 2009 (2010). Meanwhile, Nick Clegg, who is the leader of Liberal Democracy, objected to introduce a new taxation system with four pounds tax cut (The Guardian, 2009). These activities will undoubtedly encourage private consumption and achieve an increase in the British aggregate demand. The spurred consumption in the UK can be reflected from the inflation rate. As can be seen from Figure 1, the decrease of CPI rate illustrates an end towards the end of 2009, and starts to climb up again at the beginning of 2010. Accordingly, the stimulating efforts of the government begin to shed lights on the confidence of consumers’ consumption. Moreover, firms and business organisations can regain confidence to invest for higher profit from the lower interest rates in Britain. All of these are closely related and interdependent with each other in a positive growing economy. According to the latest survey, the current situation for UK’s manufacturing industry has improved significantly.

Figure 1. Inflation

Source: (Office for National Statistics: 2010)

Undoubtedly, the increasing product prices and demands have a positive influence on the economic situation, which has been worried by the UK parliament for a long time Firstly, ‘There were some signs of increased demand for workers figures. The number of vacancies being advertised rose by 16,000 compared with the previous three-month period’ (BBC NEWS, 2010). According to Anderton (2008), there is an inverse relationship between inflation rate and unemployment rate. Because when there is an ascending consumption in the UK, companies require more workforces to enlarge their productivities. This theory is supported by what is now happening in the UK. BBC NEWS (2010) highlighted that the number of recruitment of 16-24-year-olds and part-time jobs had respectively risen 16,000 and 99,000, and the overall number of unemployment had decreased to 2.46 million. As more people are working and getting paid, more income is being able to be spent, hence, further triggers the increase of demand of the whole society. In an economic aspect, this is a healthy circle that guides the economy out of the darkness of a recession.

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The situation of trading balance in Britain is gradually improving from a trade deficit. The average domestic price in Britain starts to fall since the explosion of the recession. This inevitably encourages the UK export industry. It is assumed that producers will look for more profits in overseas markets when products become less price-worthy in the local market. Foreigners on the other hand are likely to purchase from the UK because prices of certain products have not fallen as much in their countries. In fact, data from the Office for National Statistics proves this assumption. It claims that the aggregate exports from Britain have increased by 5.1 billion pounds in the fourth quarter of 2009. Net export is one of the main factors in GDP calculation, thus this increase in export will reflect in a large increase in GDP and contributes to the economic growth in the UK. Additionally, an increasing demand for the UK exports is likely to lead to an increasing demand for sterling, which means that the price of sterling relative to other currencies will rise. A research produced at 30th July last year states that ‘Sterling currency rates are higher this morning, gaining to USD1.6429 and EUR1.1730.’ (Currency Solutions, 2009) As can be seen, the weakness of sterling may finished. A fact that may be neglected is that the UK households will be benefited from this change since their money has a higher purchasing power than the beginning of the recession.

The most significant figure in the UK economy is the positive GDP growth. The current 1.9 percent value increase in consumption amongst the UK retail market compared with January (BBC NEWS, 2010), the increase in investment from both domestic and overseas product producers, the burden relief from government spending and the multi-billion increase in export are all positive signs that delight the entire nation. The above discussions and these statistics together suggest that private consumption, investment, government spending and net export all start to claw upward. They will once again awake the UK economy as they are the four main factors determining the GDP.

In conclusion, the UK economy is suffering a recession as all economic figures still reflect a frail economy atmosphere, especially, a negative GDP growth for the six consecutive quarters. However, the ball has reached the bottom of the cliff and is bouncing up again. The 3 percentage of CPI inflation rate, the extra 16,000 vacancies and the 5.1 billion pounds increase in total exports contribute to a 0.4 percent rise in economic growth. The UK has successfully prevented the recession to become a depression and managed to recover in a relative high speed.