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Effects of the recession on the united kingdom

The financial crisis has been engulfing the whole world since 2007, which was reported by Guina (2009). Undoubtedly, the UK has been incorporated as well. According to the BBC (2008), it had suffered from recession by falling 1.4% in GDP in 1991. Gross Domestic Product, ‘measures of national income which exclude and include respectively net income from investments abroad, but do not include an allowance for depreciation of the nation’s capital stock’ defined by Anderton (2008: 140). The figure from the National Statistic Office (2010) manifested that GDP continued to decrease until the second quarter in 2008; to put it differently, the situation was worse again. However, it also pointed that GDP in the UK had risen to 0.3% in the fourth quarter in 2009, which is the first time became positive since 2008. Therefore, the aim of this essay is principally to introduce the recession by three important perspectives in the UK, namely deflation, unemployment and economic growth. The unemployment rate increasing resulted in deflation while the economic growth slows in the UK.

The unemployment rate has expanded in recent years, which leads to decreasing consumption because of the financial crisis in the UK in 2008 (Macdonald, 2010). The reason that the unemployment rate raised is because industries manifested less while the overall demand diminishing. As a result, companies may downsize workers. It principally caused deep influence around workers in two aspects. The workers who are unemployed cannot afford their children to continue to be educated; meanwhile, unemployed workers tend to spend less. Some companies are planning several solutions to reduce the unemployment in order to promote the economic growth. Take the supermarket Asda in the UK for example. It is one of the less expensive supermarkets, which is suitable for consumers to spend less money. Therefore, it increases more consumers even at recession. As a result, the Asda decides to increase more than two thousand jobs, in particular for teenagers (unemploymentinfrance, 2009).

Figure 1 United Kingdom Unemployment Rate

Source: Trading Economics (2010)

Figure 2 China Unemployment Rate

Source: Trading Economics (2010)

As can be seen from the two diagrams above, the unemployment rate in the UK slightly raised since July 2009, while Chinese unemployment rate remains constancy (Trading economics, 2010). The similarity between the two graphs is they both risen since January 2008 while the financial crisis occurred around the world. This is mainly because the financial crisis is affected the UK more seriously.

Deflation, which can be defined as the price of commodities lessens (Anderton. 2008), results in diminishing interest rates that can be compared to the US. After inflation that means the price level risen (Anderton, 2008), the UK trends to deflation since the consumption of consumers decreases significantly, which leads to the supply of products more than demand. In the meantime, the government will decrease the interest rate in order to encourage consumers for promoting consumption. This kind of measure can probably relax the deflation. Besides, the government should impose the positive fiscal policies and some stable monetary policies that may facilitate consumption. In addition, the consumer committee should plan the proper consumption policies. The National statistic office (2010) stated that the interest rate in the UK is 3% while it is 0.5% higher than the US. This case illustrates that the UK should pay more attention than the US.

Economic growth mainly depends on the five aspects, which are consumption, investment, government spending, exports and imports (Anderton, 2008). Consumer spending can focus on business confidence. If confidence increases, the consumption is high as consumers are willing to spend more since they would receive more in the future, otherwise, they will save more now (T Pettinger, 2010). However, owing to the decline of the UK economy, most of the people in the UK lost their confidence, as they are afraid they will become jobless or receive less salary.

Government spending, namely education, health, social security and defence (BBC, 2009), is risen as to reduce the deflation in the UK. For instance, education spending is increased 2.8% in recent years, and more money is spent on the NHS (National Health Services), from ₤90 million in 2007 to ₤110 million 2010 (, 2007).

Exports and imports can manifest how the economic growth is. Stoddard (2010) stated that the biggest exports were medicines, which increased 16.1% comparing with 2008 in 2009. Concurrently, Stoddard reported that the export of petrol has decreased 25.6% since 2009. Meanwhile, the biggest import is motor cars (Stoddard, 2010). Totally, the exports have decreased in the UK, as the world did not in the booming period, people receive less money, and hence they diminish the consumption. The imports decreased as well, since people received less money in the UK.

Consequently, the risen unemployment rate gives risk to deflation, while the economic growth slows. As far as I am concerned, while the world is in the financial crisis, the Britain government should plan some projects to lessen the loss of people. In the meantime, consumers should spend more money to promote demand.

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