Economic Performance of the United Kingdom

Question: Describe about the Economic Performance of the United Kingdom. Answer: Introduction The United Kingdom (UK) also termed as Great Britain is a sovereign state which is situated off the coast of Europe on the north-western side. It is made up of four countries namely: England, Scotland, Wales and North Ireland. According to Astell-Burt Feng (2013), the UK is a prominent financial center; a factor that contributes to its huge trading power. Svensson (2010) ascertains that the UK is ranked third in terms of the size of the Economy in Europe after Germany and France. In 2014, the population of the United Kingdom was estimated to be sixty-six million which represented an annual increase of 0. 7 percent from the preceding year. In the last quarter of the same year, the kingdom attained a GDP per capita of $ 40969.7 and a nominal GDP of 2.8 trillion respectively (World Bank). Despite the economic progress in the kingdom, it faces varied challenges such as state union in attempts to foster the seamless growth of the GDP and reduce the unemployment rate, especially among the young people. Westlund Adam (2010) ascertain that the economy of the UK faces numerous challenges that lenders it unstable and thus, more likely to operate under recession conditions. Some of these setbacks include global economic slowdown, declining home prices, and high consumer debt. Various interventions have been developed by the relevant stakeholders in an attempt to minimize the extensive economic slowdown caused by deterioration of major sectors such as banking and manufacturing (Haskel et al., 2011). The formulation of these strategies is done in a manner that triggers the hasty growth of the economy and steadies financial market through interventions such as cutting taxes temporarily and suspending borrowing activities in the public sector. The service industry is the major contributor to economic growth in the UK amounting to 80 % of the nominal GDP (World Bank). Analysis of the Output Performance Westlund Adam (2010) define real GDP as an economic indicator that determines the worth of goods and services sold by a country in a period of one year corrected for price changes and inflation. This indicator is used as an element of evaluating the strength of an economy by quantifying the worth of all goods and services sold by a country in a given period of time usually one year. According to Svensson (2010), the real GDP also accounts for paid-in construction costs foreign trade balances, government purchases, personal consumption, and private inventories. Real GDP exceeding 6 % depicts declining economic growth attributed to factors such as high inflation and unemployment rates. Fig 1. Real GDP of the UK 1956-2013. Real GDP per capita is computed by diving the average production of a given country by the total population. The value gives a perception of the output per person which is dependent on factors such value of imports versus export. Willett Laney (2014) alludes that real GDP per capita is expressed in ratio form and aids in comparing the average output between nations by determining the living standards in the respective countries. Mohan (2014) argues that a high Real GDP per capital translates into high standards of living linked to enhanced production in various sectors which contribute to economic growth. Fig 2. UK GDP Per Capita 2000-2014. According to Svensson (2010) growth rate of the real GDP refers to nominal GDP which has been adjusted for price on per annum basis. This rate gives a perception of the health of the economy by indicating the variation in real GDP in percentage form. A negative growth rate depicts a deteriorating economy while a positive rate gives a perception of growing economy. Production output in the UK from the second quarter of 2010, has been increasing leading to a regain in the level that existed before the global economic crisis in 2008 (Haskel et al., 2011). Prior to the economic out fell in 2008, the Real GDP in the UK had been experiencing a rampant growth for sixteen consecutive years attributed to the better performance of sectors such as production and manufacturing. Fig 3. UK Real GDP Change in Percentage 1949-2011. The UK has implemented various interventions designed to enhance the sectors that contribute largely to economic growth. According to Astell-Burt Feng (2013), countries which make up the UK focuses output and aggregate as strategies of increasing the consumer expenses and thus, guarantying sustainable economic growth in the long-term. The UK has designed guides to steward a boost of the Real GDP through approach debt strategies that are designed to ensure a seamless economic prosperity. For instance, UK has embraced short-term public debt in comparison to long-term productivity which is closely linked to economic instability. Analysis of the Labour Market There are three types of unemployment subject to the causative factors and their impacts to the performance of the economy. Bell Blanchflower (2010) define unemployment as an indicator of the health of the economy that happens when a person who is aggressively looking for employment is not able to secure it. Types of unemployment include structural, frictional, and cyclical unemployment. Frictional unemployment is associated with a mismatch of factors related to employees and employers (Willett Laney, 2014). This type of job shift emerges when elements such as skills, benefits, and salary act as obstacles to fruitful hiring. Economic recession has high links with cyclical employment due to a rampant decrease in job supply and thus, a high number of unemployment. According to Bell Blanchflower (2010), structural unemployment exists between work transitions caused by high dependency on professional labour can consequently lead to widespread use of machines and thus, huge loss of tra ined human personnel. Structural unemployment is permanent and resistant to stimulus since it renders the set skills and technical skills of individuals obsolete. The unemployment rate in the UK has seen minimal variations since 2000 due to various measures which work to ensure that the rate is below the global average. However, the global recession in 2008 caused a substantial boost in the rate reaching an all-time high of 8.4 percent. Demirel Kesidou (2011) ascertain that the high rate of unemployment during this period was caused by weakening real GDP which consequently results to fewer outputs from firms and thus, limited demand for employees. Further, with declining GDP, some businesses fail completely leading to permanent loss of employment. Willett Laney (2014) argue that a low number of employment opportunities in the UK during the global economic recession period was caused by low confidence levels among the investors which resulted in a limited number of profit ventures. This made organizations hesitant to use a huge amount of resources in hiring new staff even at a lower compensation. Fig 4. Unemployment rate In the UK (%) 2004-2015. Various types of unemployment are common in the economy of the UK. According to Corry, Valero, Van Reenen (2011), the economic recession of 2008 was responsible for the high cyclical unemployment that was caused by a higher demand for employment than the available slots. Structural unemployment in the UK exists as a result of the widespread adjustment in the health of the economy caused by poor performance of major economic sectors such as manufacturing (Haskel et al., 2011). For instance, the inclination of the economy to the service sector has lead to loss of numerous job opportunities. In the UK, frictional type of unemployment is more rampant in comparison to other forms of joblessness as a result of the extended period required by those seeking employment to get hired. The UK often formulates varied measures aimed at bettering labour market and eradicating the mismatches that exist between job seekers and the employees. Denis Kannan (2013) ascertain that the UK has designed and implemented apprenticeship scheme policies that aim at equipping job seekers with competitive skills that can aid them in improving the incentives to secure employment. In the last quarter of 2013, approximately half a million people living in the UK had already initiated apprenticeships programs. Cogley, Sargent, Surico (2015) affirm that the UK has formulated tax cuts and employment subsidies policies that have an objective of minimizing employment attributed to lack of relevant knowledge and experience. Price level Analysis Inflation refers to an unceasing increase in the cost of goods and services expressed in percentage as a consequence of declining economic performance (Bernanke, Antonovics, Frank, 2015). The increased cost of scarce goods and services is usually attributed to demand-pull fluctuations which are common during the economic recession. This high cost of goods and services lowers the buying ability of consumers and therefore, the scarce resources are always available in the market. According to Boons et al. (2013), rising prices of production resources is the primary causative of cost-push inflation that results in escalated cost of goods and services. Some of these production factors that contributes to inflation include salary increment, the high price of oil, and import price fluctuations which influenced by the strength of the currency of the respective country. Inflation rate depicts of terms of percentage the pace at which the value of a given currency deteriorates. Mohan (2014)affirm that the UK applies Consumer Price Index (CPI) as a measure of quantifying the inflation rate. Over the past one decade, the inflation rate in the UK has remained stable with an insignificant variation of either an increase or decrease of 0.3 % (Bernanke, Antonovics, Frank, 2015).However, in 2008, due to global economic crisis inflation rate in the UK deteriorated significantly reaching an optimum value of 4%. In the last quarter of 2014, the inflation rate in the kingdom improved significantly from 2.8 % in 2009 to 0.5 % percent. This was consistent with the set target of 2 percent that is critical in upgrading production and raising the aggregate demand. Mohan (2014) argues that this rise was caused by reduced cost of transport and was in accordance with the market anticipation of 0.5 %. Fig 5. Inflation Rates in the UK (%) 2007-2015. The high cost of inflation in the UK, especially in 2011, was caused by high temporary costs related to elements such as commodity prices, effects of taxes, and devaluation (Friedman Schwartz, 2011). These aspects lead to an increase in the operation costs of operation in companies a situation that forced them to raise the cost of goods and services as a measure of maintaining an acceptable profit margin. Svensson (2010) argues that in the UK cost inflation is attributed to the practice of devaluation of 30% of the worth of commodities imported into the Kingdom. The process of devaluation raises the cost of imported products since it depresses the market value of the pound and therefore, companies and individuals are compelled to pay for the same commodities. Cost inflation in the UK is also linked to higher prices of oil. In the UK, petroleum products are widely used as raw materials in manufacturing industries and also aids greatly in the transportation of finished products.. The UK often formulated various interventions aimed at stabilizing fluctuating costs of commodities and services that result to inflation. Various monetary policies have been implemented in the UK with a mandate of regulating prices as a strategy of mitigating challenges associated with inflation (Haskel et al., 2011). The design of these interventions is guided by various targets set by the government and financial institutions. Conclusion Various parameters are evaluated in order to develop a better perception regarding the health of the economy in a given country. These macroeconomic indicators are carefully examined and analyzed to depict the performance of major sectors that contribute to economic growth. Assessing the health of an economy aids in formulating measures to foster rapid economic progress and eradicate obstacles to optimum economic performance. The real GDP growth rate, unemployment rate, inflation rate, real GDP, and real GDP per capita are the commonly used economic indicators. Evaluation of these parameters has indicated that the economy of the UK is healthy relative to other nations globally. However, some elements such as unemployment high inflation rates have depicted some of the challenges that the UK is facing. The UK often develop strategies that aim at enhancing the real GDP, stabilizing the cost of commodities, and minimizing the challenges of unemployment. References Astell-Burt, T., Feng, X. (2013). Health and the 2008 economic recession: evidence from the United Kingdom.PLoS One,8(2), e56674. Bell, D. N., Blanchflower, D. G. (2010). UK unemployment in the great recession.National Institute Economic Review,214(1), R3-R25. Bernanke, B., Antonovics, K., Frank, R. (2015).Principles of macroeconomics. New York: McGraw-Hill Higher Education. Boons, F., Montalvo, C., Quist, J., Wagner, M. (2013). Sustainable innovation, business models and economic performance: an overview. Journal of Cleaner Production,45, 1-8. Cogley, T., Sargent, T. J., Surico, P. (2015). Price-level uncertainty and instability in the United Kingdom.Journal of Economic Dynamics and Control,52, 1-16. Corry, D., Valero, A., Van Reenen, J. (2011). UK economic performance since 1997: growth, productivity and jobs. Demirel, P., Kesidou, E. (2011). Stimulating different types of eco-innovation in the UK: Government policies and firm motivations.Ecological Economics,70(8), 1546-1557. Denis, S., Kannan, P. (2013). The impact of uncertainty shocks on the UK economy. Friedman, M., Schwartz, A. J. (2011). Monetary trends in the United States and the United Kingdom.National Bureau of Economic Research Books. Gomes, P. (2012). Labour market flows facts from the United Kingdom. Labour Economics,19(2), 165-175. Haskel, J., Goodridge, P., Pesole, A., Awano, G., Franklin, M., Kastrinaki, Z. (2011). Driving economic growth Innovation, knowledge spending and productivity growth in the UK. Mohan, J. (2014).A United Kingdom?: economic, social and political geographies. Abingdon: Routledge. Svensson, L. E. (2010). Inflation targeting. InMonetary Economics(pp. 127-131). Palgrave Macmillan UK.