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Prospects for UK Economy

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UK Economy 2008

At the beginning of 2008, the UK economy is doing reasonably well. Key economic indicators suggest a healthy economy. However, despite the good statistics there are concerns over the housing market and prospects of an economic downturn.

Snapshot of UK economy
 

  • Economic Growth 2.5% per annum - close to long run trend rate of growth

     

  • Inflation 2.1% close to government's inflation target of 2%

     

  • Unemployment. Claimant count is close to 3.5%. Employment is at record levels. Although the Labour Force survey suggests higher rates of unemployment, unemployment is at its lowest level since 1975

     

  • Balance of Payment Deficit. the Deficit on the Current Account has increased to nearly 5% of GDP in the last quarter of 2007. This is a concern for future.

Problems facing the UK Economy
 

  • Housing Market. Many argue house prices are overvalued, if house prices were to fall it would have a big negative impact upon economic growth; this would be the most likely factor to cause a recession in the UK.

     

  • Government Borrowing. Despite years of economic growth, the government is close to breaching its own limit of borrowing more than 3% of GDP. This limits the scope for expansionary fiscal policy should the economy decline.

     

  • Large Current Account Deficit. The large deficit is an indication of the UK's declining competitiveness in manufacturing. The current account deficit may cause a weaker pound in 2008.

     

  • Inflationary Pressures. Despite the slowdown in the global economy, the MPC are still worried about inflationary pressures, they point to rising energy and oil prices.

     

  • Global Credit Crunch. The shortfall in US subprime mortgage accounts has caused problems for British banks, most notably Northern Rock. This means that many borrowers are finding it difficult to borrow. The problems at Northern Rock have also caused a decline in consumer confidence

Outlook for 2009

There is no guarantee the UK will enter into recession. It is possible that a few cuts in interest rates, will boost the economy and avoid a downturn. There are many differences between now and the last recession in 1991. Also many economists feel that the trade cycle has become less volatile and therefore, it is possible for the UK to keep growing as it has in previous years.


About the Author

Richard Pettinger studied Politics and Economics at Lady Margaret Hall, Oxford University. He now works as an economics teacher in Oxford. He enjoys writing essays on Economic and he edits an Economics Blog focused on UK and US economies: http://www.economicshelp.org/econ.html


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Article Published/Sorted/Amended on Scopulus 2008-02-22 11:57:12 in Economic Articles

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