The UK Economy from end of 1980 to 2017
Though the UK Economy has faced both high growths and recessions in the last 30 years, it has shown consistent growth. Currently, the UK faces various major macroeconomic issues whose status can be explained by the economic trend in the last two decades. GDP, inflation, productivity, unemployment, and balance of trade are major indicators for measuring UK’s economy.
GDP is an important measure for analyzing the country’s activities like production of goods and services. Real GDP in the country has been increasing annually except during the recession periods. After the 1990 recession, the economy grew consistently for about 16 consecutive years until the following 2008 recession. By 2010, its growth has grew to about a 1/7 that of the US which could have been more if it were not for the recession. However it resumed growing from 2010 eventually regaining the pre-downturn levels in the third quarter of 2013. The average real GDP growth since the last 30 years has been measured to be about 2.4% (ONS Digital, 2015). The rate of GDP growth in UK was continuously exceeding its population growth, with GDP per head in 2014 being 87% which was below GDP per head in the previous years (ONS Digital, 2015). However, this trend was affected by 2007 and 2009 recession causing GDP per head in 2014 to be below that of 2007.
Productivity is an important factor in driving the country’s economy. An increase in production means increase in produce per unit input. Labour productivity has been increasing in the past two decades to an average of 1.8% per year, but this decreased sharply during 2008 and 2009 recession (Pettinger, 2015). As years went by, growth in productivity declined due to the faster growth of labor market input as compared to GDP growth. This explains the fall of unemployment in recent years. According to UK statistics, unemployment fell by 0.7% from 2014 to 2015. In the recent years, UK has recorded the highest levels of employment rates which have been accelerating since the mid-1980s. From the mid-1980s, the UK economy had started to boom after the 1981 recession. Although the 1991 recession caused unemployment to rise, the following long boom from the 1990s to 2000s caused the unemployment rate fall to as low as 5% which was near to full employment. The 2008 recession, however, led to a sharp decline of jobs as a result of job retrenchments and consequently increasing the unemployment rate. The economy, however, recovered very quickly in the recent years recording unemployment rate of 5.5% in 2015 from 6.2% in 2014 and to 4.7% in February 2017 (Pettinger, 2015).
Inflation is also another important indicator that can be used to measure UK economy since the end of 1980. At the end of 1980, UK experienced a rapid increase in economic growth which significantly resulted to a demand pull inflation of 8% (Canarella & Miller, 2017). In 2008 to 2013, it further experienced a cost push inflation caused by increased oil prices, devaluation of UK currency and high taxation. The devaluation of the currency was caused by Brexit, and together with other cost factors, the inflation increased to 2.3% which is above the 2% average earning, same target given by the Bank of England (Canarella & Miller, 2017). This raised concerns of the potential increase in consumer spending and how long The UK economy would continue being driven by consumer spending. This is because, at 2.3% , inflation increases at the same rate with average earning, which means any pay increase get eaten up by increasing costs. This percentage remained unchanged as at March 2017 and even worse expected to increase. This was after inflation sharply increased from 0.9% in October 2016 to 2.3% in March 2017 (Fletcher, 2017). This is not a good indicator of UK economy considering it is one of the major current concerns of the Bank of England.
The issue of balance of payment is another economic factor in UK especially now that the world is getting more interconnected. Although UK is not a member of EU, its balance of trade has been showing a huge deficit in previous years. Economic interdependence is beneficial to consumers and producers because of the wider range of goods and services provided. UK’s imports and exports have shown a continuous growth but the imports have been growing more. UK has, therefore, been running a trade deficit. However, the UK’s balance of trade is much flatter as compared to that of US. The US economy imports more than it exports while spending much higher and saving less. Even so, UK’s economy is unbalanced enough, something that should be given much attention.
Compared to other economies, UK’s economy is relatively stronger, and its trend continues to grow up. The country’s employment rate has significantly increased over the years to almost complete employment. Its GDP is also picking up well since the 2008 recession. More importantly, its balance of trade is much later as compared to other economies including the US. Globalization has made the world to become more interconnected, thus, macroeconomic issues are becoming more important in measuring economies. The future of economies including that of UK will be sustained if only countries focus on reducing unemployment rate, managing and maintaining inflation within their desirable ranges, and finally strengthening their economic interdependence.
References
Canarella, G., & Miller, S. M. (2017). Inflation persistence before and after inflation targeting: A fractional integration approach. Eastern Economic Journal, 43(1), 78-103.
Fletcher Nick (2017, April 11). UK inflation steady at 2.3% in March-as it happened. Theguardian 2017, April 29. Retrieved from https://www.theguardian.com/business/live/2017/apr/11/markets-edgy-on-political-risks-ahead-of-uk-inflation-business-live?page=with:block-58ec975ce4b05776df18c9a7#block-58ec975ce4b05776df18c9a7.
ONS Digital (2015). Trends in the UK economy. UK, AL: Office for National Statistics. 2017, April 29.
Pettinger Tejvan (2015, December 16). UK unemployment stats and graphs. Economics help blog. Standard 2017, April 29. Retrieved from http://www.economicshelp.org/blog/5695/alevel/unemployment-stats-and-graphs/