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