In the global economy, the focus of every state is to maximize the economic transformation and all endeavors are towards a better and stable economy. The trend indicates that in the developed economies there will be a mismatch in the sectors of the government. This mismatch will be brought by the number of retired people being more than the number of the working age. The pressure on the environment and global resources has increased. The climatic change particularly has necessitated an immediate action. The technological changes, inventions and rise of other emerging markets are creating integrated and competitive global markets. In this research work we are going to critically analyses and evaluate the key areas that UK economy has undergone for the last past decades.
United Kingdom economy just like other economies of the world has been characterized by many challenges, which has historically affected in both positive and negative way. For the past decades, this is the period which many global economies have been integrating so that to curb many economic uncertainties. There has also been some global economic shocks experience by United Kingdom as well. For instance, in 1970s and 1980s there had been rapid oil price increase which shook the UK economy. In addition there have been other shocks like the energy price increase, bubble bust of the dotcom bubble in 2000 and of price increase which has taken price in the recent years.
From 1970s to 1990s the UK economy has been lacking resilient to the economic shocks and instability in macroeconomic compared to the other G7 countries. In this period the economic growth of UK was around 2 ¼ percent compared to its peers which are France and Germany at 2 ¾, and 3 percent for Japan and 4 percent for United States. This was as a result of relatively low economic performance including a GDP which was weak. There was also the presence of higher short and also long term interest rates. The inflation rate for United Kingdom was relatively high considering the low rates which were found in other G7 countries (Jaffe, Henderson, and Trajtenberg 463).
In the mid 1970s, early 1980s and also in early 1990s UK suffered severe recessions and repeated levels of high inflation which reached at the highest of 25 % in 1975, 20% in the 1980 and close to 10% in the year 1990 (Jaffe, Henderson, and Trajtenberg 464). Those shocks were as a result of external impacts which were brought by rise in global oil price. Although the economy of UK was higher than other economies, the economy was also characterized with high volatile inflation; cost associated with unanticipated inflation and also increased uncertainty in the economy performance. During this period, interest rates were very high which was above 10 percent during 1980s. The relatively poor performance in the UK economy made UK income per head drop and became the lowest in the G7 economies in 1990s (Jaffe, Henderson, and Trajtenberg 464).
The swing in inflation and output affected the employment and many who worked during the recession lost their jobs. Capital stock Investment was hampered by output and price volatility. This made business investment fall by 12 % in the 1980s recession and consecutively fell by17% in the early 1990s. In 1992 a monetary policy regime was introduced which targeted inflation. This assisted in the stability of the economy and the inflation levels also declined up to mid 1990s. This decline was also as a result of persistence of deep recession and the interest rates which had been kept above 10 % in 1988 to 1992. However, as the level of inflation fell, the expectation of inflation in the financial markets still remained above the target (Stephan and Levin 61).
The government also put in place new policy framework for macroeconomic which was designed to deliver the stability. The government also introduced reforms in microeconomic to enhance resilience through increasing the flexibility of labor, capital markets and products. Introduction of this new policy frame work in the monetary has seen the government able to close its symmetric target. The inflation has been at an average level of 2.4 % from May 1997 to 2003 November. In addition, by December 2003 the CPI inflation has been in a stable average of 2 % (Sriskandarajah, Cooley, and Reed 27). In the recent years the inflation in UK has enjoyed the lowest rates in the G7 economies apart from Japan. The nominal rates have been in average levels for the previous two decades and have also maintained a considerable stability. Despite the sustained levels of high prices in global oil this record of stable and low inflation has been attained.
In the 21st century, there is reduction of persistent gap of growth rates among the regions. The progress has been achieved where the gap in GVA per individual growth rates has been reduced. By the year 2006 the performance between the top performing regions and the bottom performing regions was only 0.1 % (Stephan and Levin 61). UK economy has also continued to flourish after industrial structure has been changed by prompting the businesses to adapt to the changing economy and taking advantage of the new opportunities. The focus of the UK economy has shifted from manufacturing and agriculture towards service delivery, investment openness in terms of trade and migration.
In conclusion, the UK macroeconomic framework is anchored on principles of responsibility, accountability, and transparency. The framework has been able to set clear objectives for fiscal and monetary policy which are embodied on the constrained discretion principle. This means that short term flexibility is afforded to policy makers to enable them to meet long term goals which are credible. Therefore, UK economy will continue to stabilize and approach the lowest level of inflation in the world if those monetary and fiscal policies continue to be implemented.
Work Cited
Jaffe, A., Henderson, R., and Trajtenberg, M. Patent citations and the geography of
knowledge spillovers: A re-assessment – Comment, American Economic Review, 95(1), (2005): 461-464.
Stephan, P., Levin, S. Exceptional contributions to UK science by the foreign-born
and foreign-educated, Population Research and Policy Review, Vol. 20, No. 1, (2001): 59–79.
Sriskandarajah, D., Cooley and L. Reed, H. Paying their way: the fiscal contribution
of immigrants in the UK, Institute of Public Policy Research. London: Cengage Learning. (2005).