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重要的当前经济分析
要评估任何经济方面的成就，就必须对全球经济领域进行一个总体的概述，这样可以在一定保证评估的公平性。要论政府和英国央行(bank of England)在经济运营上成功与否，后续需要对许多经济因素进行细致的研究。事实上,英国经济经历了很多跌宕起伏，而且最近与其他发达国家相比，英国的增长速度处于停滞状态。
作为欧盟的一员,任何国家成员经济衰退的出现都可能会很大程度上拖累英国经济。然而从经济角度上说，相比许多欧洲国家英国还是发展得很不错的。
国内生产总值(gdp)
有一些经济措施如国内生产总值，是用于分析一个国家的经济的。这一措施是一个很能说明问题的宏观经济指标，它是所有经济的寒暑表，因为它是收入、 开支或在给定的经济范围内的生产总量的体现，并且大多数时间都依赖这个指标来评估一个经济的表现。
Material Current Economic Analysis Economics Essay
In order to assess the success of any economy, it is necessary to have a general overview of the global economic sphere to make that assessment fair to a certain extent. To say that the government and the bank of England were successful or not in running the economy; this latter requires a meticulous study of many economic factors. Indeed, UK economy has gone through many ups and downs, and recently its status witnesses stagnation compared to the pace of growth of other developed countries.
As a member of the European Union, any economic downturn witnessed in the state members is likely to drag UK economy deep down. However, it is, economically speaking, doing well, compared to many European countries.
Gross domestic product
There are some economic measures that are used in order to analyze the economy of a country, such as GDP. This measure is a very revealing macroeconomic indicator; for it is the thermometer of any economy since it is the embodiment of the total of income, expenditure or production within a given economy and it is most of the time relied on to assess how well an economy is doing. Therefore, a country recording a high GDP is considered to be a performing and growing economy, bearing in mind that recession is defined as two consecutive quarters of low GDP.
According to the IMF world economic outlook (2010), UK was ranked as the 6th largest economy in the world, its GDP in trillion US Dollars reached 2.3. In 2011, UK GDP increased to 2.4 trillion US dollars; however it stepped back to the 7th rank. While in 2012, the GDP remained the same (2.4) but UK got its 6th rank back. Nonetheless, comparing UK economy performance(2.4 GDP in 2011) within the EU itself shows that it is not a lot behind the leading economies in Europe in the recent years, namely Germany in the first rank with a 3.6 GDP in 2011and France with a 2.8 GDP in the same year.
Trade deficit / UK borrowing
There is no doubt that UK economy is recovering from the world economic crisis but the pace remains very slow in terms of the international level of competition. This slow motion is due to many factors; for instance, UK suffers from trade deficit despite recent attempts that government is trying to reduce it. And since 2011, UK’s monthly trade deficit recorded more than 4 billion per month.
Thus, the government is in a great need to borrow since its spending outnumbers its tax revenue receipt. And in order to finance this deficit, the government via the Debt Management Office sells bonds, gilts and treasury bills.
Recently, UK is fighting with its national debt, and as borrowing mirrors is a great inequality between expenditures and tax revenue, this latter may guide to unmentionable debt levels in the future, and its rise could result in a crisis.
Since 2009, the Bank of England has purchased gilts. During this period, the percentage of gilts held by UK insurance and pension funds has fallen. While on 15th September, 2012 The Bank of England has bought ￡356bn worth of UK gilts.
The graph below from the Bank of England shows that by Q2 2011, this bank held ￡200bn of government gilts, which is a large share of the increase in gilts. These bonds have to be refunded in full, with interest, and interest rates that are low in UK. In other words, the cost of financing national debt is low, which is a plus since the government is likely to spend relatively small percentage of GDP on debt financing.
Source: Bank of England
Furthermore, UK Public sector net debt was ￡1,032.4 billion at the end of July 2012, equivalent to 65.7% of GDP. The level of government borrowing is quite worrying but it is a manageable challenge. So, the following is a graph tracking the net borrowing rates:
With regard to the annual amount that the government has to borrow, this latter was at the peak during the global crisis, but it decreased gradually during the last three years. However, the government has undertaken a positive measure of reducing the budget deficit by the percentage of 25 in the past two years (2009-2010/2011-2012) which is a decrease of 25% in annual borrowing between 2009-10 and 2011-12. The cut in public investment sector remains the most important factor behind deficit reduction.
Government spending 2009-10 +4.6%
Government spending 2010-11 +0.3%
Government spending 2011-12 -1.5%
Though it is the world's sixth richest country, UK owes over ￡1trillion, excluding bank bailouts, according to the Institute of fiscal studies standing at 770 billion euro, with an annual interest payment of 70 billion that is to rise even more. Osborne says that this is “unavoidable”. It seems that the government spends more money than it can tax. Borrowing remains the only way to finance any spending that can't be supported by taxation. Therefore, if the economy health prospects are less than expected, tax revenues decreases and the state has recourse to more debt to cover the deficit.
The Government needs to stop borrowing and spend less. Hence, it is true that debt doesn't have to be a constraint on growth but it doesn’t guarantee growth either.
Since 2010, the government has claimed that reducing debt level is the most pressing economic problem. That is why; government has pursued austerity leading to lower growth.
The following is a graph showing the escalation of the rate of debt over the last three years:
Inflation
UK economy experiences an inflationary Pressure. As there is a fear that elevated levels of national debt can bring about inflation. If debt augments sharply, there won’t be sufficient investors to purchase the government securities, which is habitually the best manner to payback debt. Thus, the government will find itself obliged to overcome the deficit in revenue by printing money, which leads consequently to inflation. When investors are faced with a growing inflation, they lose confidence in holding bonds. Even worse, foreign investors as well tend to sell their securities, causing devaluation in the currency.
The following a graph of the inflation rates over the last two years.
In 2010, the inflation rate was closer to 4%, and it was the highest record since the global economic downturn.It is well above the target of the central bank (2%) and even higher than the maximum normally allowed (3%). And even among the major economies, UK held the highest inflation (December 2010 USA: +1.5%/ euro zone +2.2%). This was a real surprise for analysts who expected 3.4% at max. So much as the Bank of England (BoE) forecasts have always been too low for inflation. In 2011, the situation got worse, recording an inflation rate of 4.4%, a clear sign that the situation is out of control.
The loose monetary policy of the BoE with an interest rate of 0.5% doesn’t seem to absorb this inflation. The bank is thus under pressure and should resolve to tighten monetary policy.
David Kern, chief economist at the British Chambers of Commerce (2012), expected inflation to fall to about 2% by the end of the year, relieving the squeeze on businesses and household consumption. But he warned nevertheless of the continuing upward pressures on inflation because of the recent surge in world food prices.
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Unemployment
But above all, though UK enjoys a large mass of labor force, forth in the world with 28.988 million workers, unemployment is still very high, and is likely to keep rising regardless of the UK’s austerity plan and in the absence of effective measures to reduce it.
UK government has warned in many occasions that the public sector alone will witness a loss of half a million jobs as it continues its cut on public spending.
The unemployment rate in 2011 was 8.1 per cent and increased to 8.4 in 2012.
The following graph shows the rise of unemployment especially during the last three years:#p#分页标题#e#
These figures are alarming and showing that the main problem which UK economy is facing at the moment is the high rate of unemployment.
It seems that the government has not yet figured out a way to solve this burning issue.
Economic growth
Regarding to the economic growth, bellow is the latest graph that shows that UK is in a double dip recession.
It is clear that UK‘s economy is not at its peak but forecasts indicate that it may recover soon, however, since the global economic downturn, growth is hectic and still lagging behind many European countries in the recent years, namely Germany and France.
Low economic growth deepens various economic problems, namely sharp rise in unemployment; fall in real wages, lower living standards, and increased burden of debt/GDP. With a shrinking GDP, the government stands helpless in front of its debt to GDP. Current forecasts state that regardless of the austerity measures, the debt to gross domestic products is likely to keep rising.
High unemployment, high debt, low spending, low investment and many other problems remain all domestic factors behind UK problems. However, UK economy relies as well on trade with other countries, especially Europe. Furthermore, the ongoing recession and the uncertainty of economy especially in the Eurozone are affecting UK confidence as well as exports. The concern is that if this Eurozone recession carries on worsening, it could have a large drag on UK economy, making UK recovery even slower and more difficult.
The IMF has already assessed the measures taken by governments as being lame. In the same way, the Organization for Economic Co-operation and Development stated in a report that UK is the slowest growing economy in the G7.
Bottom line, numerous economic indicators reveal that the economy is still weak. In front of this situation, the BoE should resolve to tighten monetary policy, even if the British government aggressive austerity plan will weigh on its activity.
UK and its government
The extent of the interference of the government in the economy of a given country varies according to the features of each country. Nonetheless, the government plays a crucial role in running any system to make sure that it is conducted in a structured manner. Moreover, it is required to ensure the implementation of Laws which regulate the economic activities.
Talking about UK and its government, the BoE plays a vital role in maintaining the prices stability and backing the economic policies adopted by the British Government, to catalyze the economic growth.
Quantitative easing
Since the global financial crisis, both the Bank of England and the government have taken many measures to uplift the economy, the most important of which, the Quantitative Easing by the BoE that is officially known as QE or “printing money”. The UK is not the only country to resort to QE, lately even the European Central Bank (ECB) joined UK, US and Japan. Quantitative easing has seen light in UK in 2009, with a cut in rates reaching 0.5%. This low interest rate encourages borrowing and reduces saving, thus increases spending. However, the effect of changes in interest rate on spending and saving can take a long time and even longer to show on consumer prices. For this reason, the Bank’s MPC decided to launch the QE programme.
Under this programme, the BoE issues new money and uses it to purchase government bonds from private investors (pension funds and insurance companies…etc). Those investors usually do not will to keep this money as it does not generate a satisfactory return. Consequently, they invest it in buying more assets (corporate bonds and shares), which decreases costs of borrowing and stimulates new equities and bonds issuance. When the demand of government bonds increases, their value increase as well, therefore investing in buying bonds becomes less attractive. In this way, the holders of bonds sell them and use the dividends in investing in companies or lending to borrowers, instead of purchasing again more bonds. This QE was also a way to push the government to meet the inflation target rate of 2%.
In 2010, the BoE injected ￡200bn of money in the economy to boost its growth, as it has pumped another ￡75bn in 2011 into the banking system, surpassing all the forecasts. In 2012 The BoE has announced a 3rd round of quantitative easing worth ￡50bn, reaching so far a total amount of ￡375bn.
A latest report issued by the BoE stated that QE played a boosting role in increasing the UK's annual economic output from 1.5% to 2%.Yet, specialists in the field point out that QE effect since its implementation in 2008 remained stagnant.
Indeed, QE was highly blamed for the deficits in UK company pension scheme. In 2012, this deficit reached ￡312bn.The concern then is that it has to be refunded by the working mass.
Bank Governor Sir Mervyn King has already declared recently at the release of the biannual Financial Stability report that he was “shocked at the pace at which economic conditions had worsened”.
Actually, QE then causes inflation because it injects extra money into the money supply. This will make inflation affects negatively on the prices which are getting higher and the wages which remain frozen.UK economy suffers currently from lack of money due to its massive balance of payments deficit.
In fact, QE is quite positive, however, the money injected is not going directly to the market; it is being used to rebuild bank balance sheets. Actually, QE saved the banks from going bankrupt, it pumped cash in the economy so that salaries are paid to workers and money stays available at cash points.
QE could have been more useful for businesses if the MPC had the ability to purchase private sector assets, instead of focusing exclusively on gilts. UK’s growth is expected to be still sluggish by the second half of 2013 that is why the MPC is expected to maintain the Quantitative Easing (QE) program.
Monetary policy
In the UK, Monetary policy is the job of the Bank of England. Thus, the BoE has sovereignty in setting interest rates. The government merely set the inflation target of 2% inflation. If the MPC forecast inflation will increase beyond the inflation target then they will raise interest rates. Elevated interest rates decrease demand and stop the economy growing too fast. If economic growth is slow, interest rates could be reduced; lower interest rates increase economic growth and assist in decreasing inflation.
Fiscal policy
Fiscal policy is not widely employed in developed economies, but, in hypothesis it can be employed to stop recessions or stop inflation. If inflation represents a dilemma the government can raise tax rates and cut spending. These actions will decrease Aggregate demand, and thus, decrease inflationary force.
In a recession, the government may augment AD, by boosting government spending and cutting taxes. Lower taxes augment disposable income. This might help in augmenting economic growth and decreasing unemployment.
Conclusion
UK’s slow economic growth is due to many factors, but many blame the government for implementing the harsh measure known as Austerity plan. The programme was mentioned in 2010 by ‘the Conservative and Liberal Democrat coalition government’. It was introduced in UK to swallow the high level of debts recorded after the 2008 global economic downturn. The government has decided following this plan to cut public spending and services, and implement a new wave of tax. The spending cuts concern welfare, housing, disability, and retirement benefits, as well as public sector salaries. Prime Minister David Cameron's said that this action was meant to “wipe out Britain's record $245 billion deficit”.
Following this plan, the coalition closed a number of programmes and services offered openly by Government Departments, like the public health National Support Teams. Quangos, which are public bodies funded by government, have also been a target of the austerity plan. Most of them were shut down or merged. As a matter of fact, by July 2010, a total of 54 such bodies had either been closed or had their funding been withdrawn.
The defenders of austerity plan expect a large decrease in government spending, and decrease in private consumption, which will lead to a general economic boom.
However, its opponents argue that, in periods of recession and high unemployment, austerity policies have opposite effects and are not efficient at all, because of many reasons, most important of which is that reducing the government spending increases unemployment rate. It does as well reduce GDP which means that the debt to GDP ratio is not getting any better. Many economists view the plan A as a threat rather than a solution to economic crisis.
UK economy is seriously betting on the austerity plan to reduce debts and sustain the economy growth. According to a government report, the austerity plan will lower UK’s budget deficit from 11% of GDP recorded in 2010 to nearly 1% by 2015.#p#分页标题#e#
The Prime Minister himself admitted that UK is witnessing faces a "very slow healing process", following a statement by the IMF criticizing harshly the outcome of the austerity plan.
The biggest concern now is that austerity will combine with relatively high inflation that is taking more money from individuals and freezing the economy. Contrary to what historically has been known, austerity is no longer affecting the richest class in the society. Nowadays, it is the middle and the poor class which is suffering the most. For this reason, riots are ravaging the streets against austerity plan in Greece and Spain. In the same manner, Holland is witnessing an ongoing disapproval of this plan. However, in France, people opted for a new president against the austerity plan unlike the former one. In Germany, Angel Merkel is known as a real fighter of Austerity. Will the UK government succeed in maintaining the austerity plan for more years? That is a fact to be revealed by the coming years.
In Greece, the government cut, in the name of austerity, worker salaries by 40 percent. Spain raised fees for necessities like water and medicines and cut government pensions and wages. In UK government privatized schools and hospitals and took other measures affecting more the low middle class.
The above countries are still recording negative economic growth rates. Therefore, it could be said that Austerity is pulling economies down instead of stimulating growth.
Though, UK managed recently to emerge, temporary, from recession from July to September 2012 thanks to the Olympic Games, growing by 1.0%, according to official gross domestic product figures (GDP), IMF concluded that "UK recovery stalled and is likely to be more prolonged than what is initially expected", stressing that "Confidence is weak and uncertainty is high."
The upshot of all this, UK economy is generally sluggish and current forecasts expect UK economic growth to be stronger in 2013-2014 than it was in 2011-2012.
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