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英国应对信贷危机的策略
1.0引言
从2000年到2007年,英国经济稳定并且经济实力也在增长。2007年, 尽管通货膨胀率高于2%，但英国经济正以每年3.0%的速度增长。失业率在过去两年有所上升,但在2007年呈现了下降趋势。虽然自2004年以来失业率缓慢上升,但惊奇的是通货膨胀达到3%,创下了11年的新高，并且利率再次上升,对英国经济的大体前景保持积极态度(2007年英国财政部,PricewaterCoopers,2007)。
这改变了2007年开始的全球经济危机,大约在美国次级住房市场崩溃的一年后,将压力施加给了全球金融市场 (迈曾,2008)。分析人士称,在2007年经济危机是美国19世纪30年代的大萧条以来最严重的金融危机。就像其他的现象一样，这次经济衰退导致了银行放贷量的减少，以及信贷的非价格配给,这被称为“信贷紧缩”(谢弗和胡佛,2007)。这次信贷危机的后果是包括银行在内的许多企业的失败，消费者财富的减少, 政府大量的金融承诺和整体经济活动大幅下降(Nat快速发展aste et al .,2009)。
Uks Strategies To Combat The Credit Crunch Economics Essay
1.0 INTRODUCTION
Between 2000 and 2007 the UK economy enjoyed economic stability and growing economic strength. In 2007, the UK economy was growing at an annual rate of 3.0%, although the inflation rate was above the target 2%. Unemployment had risen over the past two years but was trending downward in 2007. Despite moderate rises in the unemployment rates since 2004 and the surprise in inflation reaching an 11-year high of 3% and interest rates rising again, the general prospects for the UK economy remained positive (HM Treasury, 2007, PricewaterCoopers, 2007).
This changed with the global economic crisis that began in 2007, about a year after the sub-prime housing market in the USA collapsed, putting pressure on the global financial markets (Mizen, 2008). Analysts have claimed that the 2007 economic crisis is the worst financial crisis since the American Great Depression of the 1930s. This economic downturn, like most others, has led to decreased volume of bank lending accompanied by non-price rationing of credit, which is called a ‘credit crunch’ (Shaffer and Hoover, 2007). The outcome of this credit crunch has been the failure of many businesses including banks, a decline in consumer wealth, substantial financial commitments incurred by governments, and an overall substantial decline in economic activity (Nataste et al., 2009). In the UK, the impact was severe. According to the IMF (2009):
The UK banking system entered the crisis with large and highly leveraged balance sheets. Unprecedented writedowns have weakened capital positions and curtailed banks’ access to term funding. In response, banks have tightened the supply of credit, especially as the economic downturn has heightened the risk of further large credit losses. The withdrawal of some foreign financial institutions from the UK and the drying up of securitization markets have accentuated the credit contraction.
The consequence of this crisis was not only to bring about an almost immediate recession but also, in order to avoid the complete failure of the banking system and its institutions, governments were forced to introduce emergency ‘bail-out’ programmes (Ryan and Finch, 2008). In the UK, in addition to having to nationalise Northern Rock, the UK government had to provide around ￡700 billion to save other banks, including Lloyds TSB and RBS, in which it holds stakes of 41% and 84% respectively (Woods et al., 2008). Ryan and Finch (2008) repot that:
Lending between British banks slumped in July [20080] as financial institutions hoarded cash, signalling that Bank of England efforts to revive money markets amid a surge in subprime mortgage losses aren’t working… The volume of interbank lending in the British currency fell to 205 billion pounds, or $370 billion, from 635 billion pounds in July last year, according to central bank data published yesterday. The reading is down 24 percent from the average since the credit crunch started in August 2007, and down 38 percent for the five years ending December 2006.
Over the last twelve months the United Kingdom has implemented financial strategies to combat the devastation and ramification the ‘credit crunch’ has inflicted on the country. This paper comment on the UK’s present financial position, focusing on over the last twelve months, and makes a professional observation of the way forward in the next twelve months to get the country on a permanent footing out of the recession. The paper is divided into two further sections outlining the UK’s macroeconomic performance from 2000 to present and then discusses the way forward. The paper concludes with a brief summary.
2.0 THE UK’S PRESENT MACROECONOMIC POSITION
2.1 Introduction
Macroeconomics can be defined as the study of national economies and the determination of national income (Blanchard, 2006) and is a branch of economics that seek to understand the determinants of aggregate trends in an economy with particular focus on the ‘big three’ topics of output (economic growth), inflation, and unemployment, as well as investment and international trade (Gordon, 2003). Macroeconomics is important because governments want to be able to manage their countries’ economies. Economic management is achieved through monetary policy and fiscal policy. Monetary policy are those policies concerning the supply of money to the economy, while fiscal policy describes the deliberate change in government spending, government borrowing, or taxes to stimulate or slow down the economy (Blancard, 2006).
This section has two main sub-sections discussing Britain’s macroeconomic performance from 2000 to present so as to put the UK’s current economic position in perspective. [1] The first section talks about 2000-2007, and the second section talks about 2008-2009 when the economy was in recession and the current position in the 2009-2010 financial year.
2.2 Britain’s Macroeconomic Performance, 2000-2007
Most modern societies maintain the fairly broad goal of keeping spending and production in the macroeconomy strong without drastically increasing prices. For example, according to the Scottish Economic Report January 2000:
The UK’s macroeconomic policy framework aims at promoting economic stability, while enabling policy to respond to economic shocks. Based on the principle that stability in macroeconomic conditions facilitates both growth in output and growth in employment, it forms part of an overall economic strategy which also incorporates raising productivity, increasing employment opportunities, and promoting a fairer society.
In making comparisons of economic performance across countries, economists tend to focus on four main indicators: growth, inflation, unemployment, and balance of trade (Blanchard, 2006). Extending this, Garratt et al. (2003) outlines six domestic variables which they deem essential to a basic understanding of the behaviour of the UK macroeconomy: aggregate output, the ratio of domestic to foreign price levels, inflation, the nominal interest rate, the exchange rate, and real money balances. These indicators are reflected in the current Government’s main macroeconomic policy goals (The Scottish Government, 2004):
Sustained economic growth;
High employment;
Stable prices (low inflation);
A rise in average living standards; and
Sustainable position on the balance of payments.
The UK position on the ‘big three’ indicators are reflected in Figure 1, which shows that economic growth (as measured by the Gross Domestic Product, GDP) has been positive in the first six years of the current decade, one of the longest sustained expansion for over forty years. Figure 1 shows that Britain had enjoyed a period of continuous growth that stretches back to 1992. However, in 2005, real GDP grew by 1.8% (Figure 1), the slowest pace of growth for 12 years (Garratt et al., 2006).
Nonetheless, after this slowdown in 2005, the British economy enjoyed stronger growth in 2006 and the first half of 2007 (Figure 2). British GDP grew by 2.75% in 2006; year-on-year growth reached 3.1% in the fourth quarter of 2006 before falling minimally to 3.0% in the first quarter of 2007 (PricewaterCoopers, 2007). Economic growth was expected to slow slightly in 2008 to between 2.00% and 2.50% but it was forecasted that the economy would to return to trend growth of between 2.50% and 3.00% for 2009 and 2010 (HM Treasury, 2007).
Changes in GDP per quarter, 1990 to 2007
In March 2007, inflation rose well above its 2% target rate to 3.1%, but it fell back to 2.5% in May. Overall, inflation in the UK continued to be close to the government’s target, despite the continued high prices of oil (Figure 3).
After an all time low of 1.4 million in 2004, unemployment gradually increased in 2005 and 2006. However, the National Statistics Agency reported that the unemployment rate was 5.4% from May to July 2007, down 0.1% from the previous quarter and down 0.2% over the year, to reach 1.65 million (Figure 4).
UK Unemployment Rate, January 2002 to August 2007
With regard to trade, the export sector had struggled to maintain its share of the market in recent times because of the increasing importance of services. Jamie Chisholm reported in the Financial Times in July 2007 that the boost in the production industries contributed to the growth in the UK economy in the second quarter of the year, with manufacturing expanding by 0.6% quarter-on-quarter. This reflected a rebound in the manufacturing sector, which has often been the weakest part of the UK economy. The weak performance of exports between 2000 and 2007 had contributed to the increased current account deficit, along with high levels of consumer spending on imports, although there are disputes as to the seriousness of the problem.
Finally, 2000-2007 was characterised by increased Government borrowing. Despite continued economic growth, the Government’s increased spending had led to increased government borrowing and higher interest payments and for the first time national debt increased to over ￡500 billion. Figure 5 shows real Government spending in the UK economy from 1990 to 2005.
What were the strengths and weaknesses of the UK economy? The Scottish Government in 2004 pointed out that Britain has the following economic strengths:
Significant structural adjustment, accomplished and ongoing;
Established strengths in specific sectors such as financial services, whisky, oil and gas extraction, biotechnology, and life sciences;
Strong export performance;
High levels of employment, low unemployment;
High proportion of graduates in the population; and
A large number and quality of academic and basic research institutions.
Echoing this, in 2006 MP Des Browne noted that:
Key strengths include [Britain’s] openness to international trade and investment, flexible labour markets, a stable economic framework, a robust competition regime, quality universities, excellence in science and research, and key strengths in high-value industries such as financial services, pharmaceuticals, high-technology manufacturing and the creative industries.
On the downside, the British economy has several weaknesses including (The Scottish Government, 2004):
Low productivity in comparison to other OECD members. There is still a significant productivity gap between the UK on the one side and many advanced economies on the other, including the US and France;
Low level of corporate research and development;
Poor record in commercialising basic research;
Low levels of entrepreneurship;
Deficient transport infrastructure;
Large persistent core of long-term unemployed; and
Demographic challenge arising from low birth rate and increasing dependency ratios.
Browne (2006) also acknowledged that the UK faces a number of important challenges:
From ensuring the right skills profile for the changing needs of the economy, through translating excellence in science into innovation, reducing the regulatory burden – and ensuring that our planning and transport infrastructure are responsive to economic needs.
2.3 Britain’s Performance, 2008-2009 and Current Position, 2009-2010
As noted above, economic growth was expected to slow slightly in 2008 to between 2.00% and 2.50% but it is forecasted that the economy would to return to trend growth of between 2.50% and 3.00% for 2009 and 2010, but this is far from what happened. Instead, the UK economy officially went into recession in June 2008 as shown in Figure 6. In more recent times, the recession in the UK has continued with economic output contracting by 2.4% in Q1 2009 and 0.8% in Q2 2009 compared to the previous three months (Royal Bank of Scotland, 2009). However, the figures below show that the recession was easing at the end of 2009 (Figure 6).
UK Economy in August 2009 (RBS, 2009)
Recession (negative economic growth) continued in 2009 as the UK economy continued to struggle through recession into late 2009, only exiting the recession at the end of the year (Figure 7).
In February 2010, CPI inflation in the UK stood at 3.0%, down from 3.5% the month before (Figure 8).
More recently, the National Statistics Agency reported that the unemployment rate was at 7.8% in March 2010, down 0.1% from the previous quarter but up 1.2% from the previous year (Figure 9).
Unemployment Rate November 2007-January 2008 to November 2009-January 2010
A forecast done in April 2010 by HM Treasury (2010) reveals that UK GDP is apt to continue contractions in the near future, albeit at a slower pace. The April 2009 World Economic Outlook distributed by the IMF indicated a decline in UK GDP in 2009 by 4.1 percent, with quarterly growth happening steadily through to 2010. If this is the case, it is assumed that economic recovery will be subdued and will take place gradually as households and banks experience a hard balance sheet restructuring process. In 2010, the IMF estimates have been updated as below:
UK Real GDP % change
2008 .5% 2009-4.9% 2010 forecast 1.2% 2011 forecast 2.5%
UK Consumer Prices
2008 3.6% 2009 2.2% 2010 forecast 2.7% 2011 forecast 1.6%
Current Account Balance
2008 -1.5% 2009 -1.3% 2010 forecast -1.7% 2011 forecast -1.6%
The start of 2009 saw the economic data becoming bleaker and so, too, were the prospects for 2010 similarly downgraded. The consensus now is that growth has shifted to flat and then to negative and there is a forecasted drop in GDP by 1.1 percent by the Economist. In addition, the interest rate for the Bank of England along with the three-month treasury rate and inflation are all expected to remain at lows of less than 1 percent, 1.3 percent, and 1 percent respectively. However, it is expected that the budget balance will grow to 13 percent of GDP, resulting in the UK national public debt being over 70 percent of GDP, which is an alarming level to be at considering the Sustainable Investment Rate target of less than 40 percent (IMF, 2009). This brings with it several risks, including the threat of a sovereign debt downgrade (which would result in a rise in the UK Treasury rates as well as a decrease in confidence) and the threat of further marginalising private businesses that are already coping with issues within the industry and who are attempting to come up with capital to invest. Also, there is a further projection of an increase in unemployment to approximately 8-10 percent of the labour force or about 2.5 million to 3 million workers (HM Treasury, 2010).
3.0 THE WAY FORWARD
Regardless of the signs indicating stabilization, the UK economy is still vulnerable to future shocks. The marked increase in borrowing by the public sector as well as unexpected government debt, along with the continued fragility of the financial sector all add up to significant exposure (IMF, 2010). Under these conditions, a severe shock has the ability to disrupt stability both externally and at the domestic level. This underlines the need for conclusive and consistent policies to curtail risks while strengthening market confidence (IMF, 2009). This section discusses the way forward in the next twelve months to get the country on a permanent footing out of the recession.
A sovereign bond is issued by a national government and usually has to do with those issued in foreign currencies, while those bonds issued by a country’s own government is referred to as government bonds. A sovereign debt, therefore, is the amount owed to those who hold sovereign bonds. According to Evans-Pritchard (2009), a fiscal crisis has the potential of leading to domestic capital flight, where the pound would be weak and UK government bonds sold. In this extreme situation, the Bank of England may feel pressured to increase rates in an effort to stabilize the currency as well as to restore confidence in monetary policy. This would be a threat to the fragile economic recovery. Morgan Stanley agrees, stating that a chain of events such as these has the potential of driving yields on 10-year UK gilts up by 150 basis points, which would succeed in raising borrowing costs to over 5pc. For some time, investors have worried that a rise in bank rates before it is ready may risk a double-dip recession and, with it, a fundamental compound-debt spiral. However, this is the first time a warning of this nature has been issued by a major global investment house.
The response to the global recession and the widespread financial crisis by the UK authorities has been bold and wide-ranging. Weak banks have been injected with public capital and their affected assets are being ring-fenced. Temporary discretionary financial stimuli are in place in addition to the unprecedented easing of monetary policy. This response has been consistent with the vulnerability of the UK economy to global shocks in particular due to the size of the financial sector in relation to the economy, high household deficit, overheated property markets as well as strong links across borders. The assertive actions taken by the authorities have worked in limiting the crisis and avoiding a systemic breakdown. There are tentative indications that there is an improvement in confidence and that output decline is becoming constrained. The financial sector is still stressed, however. Moreover, the continuous crisis has resulted in large fiscal deficits as well as large contingent government debt. It is yet to be seen whether current efforts to recapitalise banks will be enough to sustain the provision of credit at the levels necessary for a strong economic recovery.
Fiscal policy involves the use of government spending, taxation, and borrowing to influence both the pattern of economic activity and also the level and growth of aggregate demand, output, and employment, in an effort to achieve economic objectives of price stability, full employment and economic growth (Blanchard, 2006). According to the HM Treasury (www.hm-treasury.gov.uk), the Government has specified two key fiscal rules:
The Golden Rule: Over the economic cycle, the Government will borrow only to invest and not to fund current spending; and
The Sustainable Investment Rule: Public sector net debt as a proportion of GDP will be held over the economic cycle at a stable and prudent level.
The 2007 Budget indicated that the Government likely to narrowly meet the Golden Rule. The current budget balance is expected to remain in deficit by ￡4 billion in the 2007/8 fiscal year before moving into increasing surpluses in later years, as revenues are projected to show continued steady growth while public spending growth is set to moderate to just under 2% per annum in real terms from 2008/9 to 2010/11 (PricewaterhouseCoopers, 2007).
With the total level of government spending surpassing ￡500 billion in 2006, much concern has been given to the actual results from this level of public sector spending. Thus, successive Governments have endeavoured to improve the efficiency with which public services are provided, including the widespread use of contracting-out and competitive tendering to provide services such as NHS catering, laundry and cleaning services, and the introduction of value for money audits for each major government spending department. After the credit crunch, it is important for the government to restore fiscal sustainability (Royal Bank of Scotland, 2009). In the current climate, the priorities that should be most important are the implementation of fiscal and monetary policies that are in tandem with the commitment to fulfilling the existing policy objectives of stabilising price as well as fiscal sustainability. In addition, priority has to be given to the continued efforts to support stability and advance the normalisation of the credit supply (IMF, 2010).
Finally, regulation is important. Bank regulation is a tool used by the central authorities to bring discipline in to the financial market that in return accounts for the financial stability of the economy. Since the recent financial crisis, bank regulation has been subject to a fair amount of criticism and debate. The Lehman Brothers collapse has been the biggest failure we’ve witnessed in the history of the corporate world. According to Matthews and Thompson (2005), the argument for the regulation of banks and other financial institutions depends on the Coase (1988) argument that unregulated private activities lead to outcomes in which social marginal costs are greater than private marginal costs. These social marginal costs happen because bank failure has more far-reaching effects throughout the economy since banks provide every other sector of an economy as well as the customers on which businesses basically count on with credit (Heffernan, 2005). Therefore, the health of any economy is dependent on an effective and well-organised banking sector. On the other hand, shareholders and banking employees are the ones that bear the private marginal costs, which tend to be of less than the social costs (Matthews and Thompson, 2005).
This argument supports Ramsay’s (1985) contention that the main economic rationale for government regulation of the marketplace is market failure, which occurs when of one or more of the conditions for the optimal operation of a competitive market fail to hold true. In terms of banking, the market can fail in several ways, such as inadequately informed consumers, asymmetrical information (consumers are less well informed than are suppliers of banking services), imprecise definition of banking products, principal-agent problems, and the inability of retail consumers to assess the safety and soundness of a banking institution without excessive cost (Dale and Wolfe, 2003, Llewellyn, 1999, Ramsay, 2007). There are four main economic arguments for bank regulation related to market failures: to protect consumers; to decrease moral hazard; to protect market integrity; and to avoid systematic risk (Dale and Wolfe, 2003, Matthews and Thompson, 2005). Llewellyn (1999) highlights other economic rationales for banking regulation, such as consumer demand for regulation. In the current situation, moral hazard is important.
Moral hazard arises due to the fact that depositors have no incentive to take care with whom they deposit if they know that there are government safety net arrangements, such as deposit insurance and compensation schemes (Dale and Wolfe, 2003). In addition, institutions have less of a reason to be risk averse if there are protection and compensation schemes for deposits (Matthews and Thompson, 2005) and if they know that the government is there to act as lender of last resort (Llewellyn, 1999). This is based on the well established argument is that the existence of a central bank (to act as lender of last resort) or the existence of deposit insurance and compensation schemes creates the need for regulation since banks are more likely to take on more asset risk while maintaining fewer reserves (Bhattacharya et al., 1998). Therefore, Dewatripont and Tirole (1994) argue that the key reason that banks are regulated is to ensure solvency, specifically in terms of the relation between equity, debt, and asset riskiness. In line with this Matthews and Thompson (2005) argue that regulation in areas such as reserve ratios and capital adequacy can help to deal with the moral hazard problem. Other than the short-term emergency response, the credit crunch has emphasised the need to improve the UK’s prudential, supervisory, and bank resolution structure (IMF, 2009).
4.0 CONCLUSION
A significant aspect of the country’s economic growth up to 2008 was that Britain has managed to avoid the boom and bust economic cycles that were common in previous period. As mentioned, since 1992 economic growth has usually been relatively close to the long run trend rate of 2.5% (Allen et al., 2007). This means that the UK had escaped periods of negative economic growth (recessions) that has in turn led to increased stability that is very important for the long-term benefit of an economy. All this changed in 2008, when GDP stagnated in the second quarter, ending the country’s longest stretch of economic growth in more than a century. The country is on the path to recovery now, but the speed and strength of the recovery is highly uncertain, given the extraordinary nature of the crisis in addition to the significance of confidence effects (IMF, 2009). On the one hand, the significant economic stimulus that the UK government has established should support the recovery.
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