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The UK economy which was once the world's largest, as the economy of the first industrial country in the world is in a recession. Throughout the 19th century, it had been the main mercantile system, enjoyed by the most prosperous society in the world (EconomyWatch, 2010a). Nevertheless, with the passage of time unemployment rises and GDP slows down. These factors in recent years indicate that the UK is in a state of recession, and the government has promoted policies aimed at solving the financial problems the recession brings in its wake.
First of all, soaring unemployment rates furnish the evidence showing the UK's economic deterioration. BBC (2009) reported that the rate of unemployment reached the peak at 7.2% which is the highest rate since 1996. The unemployment is ascribed to two main factors. On the one hand are banks are not willing to lend loans to the individuals or companies because of the credit crunch (FinanceBlog, 2009). That is to say, people failed to pay off their debts on time that make the banks lack of sufficient money back for the future lending. The banks have to adopt the conservative standard on the lender to minimize the potential loss. Therefore, just like the chain reaction, it makes an influence on reducing consumer spending, which is followed by the low investment and slow economic growth, and finally causes the unemployment going up. On the other hand, labour market is damaged by the financial crisis. Across the board, neither employers nor employees have been spared the ensuing trauma, with many companies suffering negative equity on their properties, and a number of them closing down. Adding to the gloomy picture, exports and international trade are in a continued trend of decline (Telegraph, 2008). Combined the effect of these two factors on the job market is significant and contributes considerably to the rising unemployment. In the end, high unemployment triggers a decline in productivity, ultimately leading to recession.
Secondly, negative growth of Gross Domestic Productï¼ˆGDPï¼‰leads to the recession. As a measure of national income, GDP also includes the value of taxes on expenditure (Anderton, 2008; 137).
Figure 1 UK GDP Growth (Office for National for Statistics, 2010)
The bar chart above shows the GDP growth of the UK during 1990 and 2009. It could be seen how in 2008 GDP starts to decrease sharply, and remains in a downward trend until the third quarter of 2009. In the first quarter of 2009, it registers a drop of -2.5% which is the biggest decline in the past 63 years (BBC, 2010). However, it raised by 4% at the end of 2009, indicating a probable a sign of recovery. In short, an increase in the GDP provides the single most effective and significant factor for any recovery, but no one would venture to assert that it will not revert to negative growth again.
Furthermore, when compared to the recession of 1991, this current recession of 2009 in the UK of 2009 is more serious. Again, at figure 1, we also it presented a negative growth in GDP which took place in 1991, precipitating the UK economy's fall into recession. A noted in Economicshelp (2008) the UK government increased interest rate to 15% in a measure that had a largely detrimental effect, further deteriorating economy of the country at the time. Yet, the problem in 2009 is even more severe. In 2009 the UK suffered its most serious economic problem since World War II (BBC, 2010). As the relevant concept about credit crunch presented in the second paragraph, the current recession in the UK is a large scale economic recession, one that will definitely require more time for a full recovery.
Last but not least, the UK government has applied fiscal and monetary policy in order to combat the depression. Fiscal policy is a measure about spending, taxes and borrowing of the government (Anderton, 2008; 234). The government expenditure in 2009 increased to 42% and it will still rise to 70% (Economywatch, 2009b). It means that the UK government inputs more money into different areas in order to stimulate the economy. The other measure called monetary policy and it is a measure of supply money and control interest rates achieving the goal of price stability (Anderton, 2008; 249). Government has cut down the interest rate to 1% which is a historic low (Economywatch, 2009b). The lower interest rate can stimulate consumption and expand the money supply. Both two policies can increase added demand during a recession. Indeed, these policies are helpful to economy recovery result in the product level with full employment and stable finance (Beginnermoneyinvesting, 2009).
In conclusion, the whole business cycle has fluctuated considerably due in part to the UK recession. It reflected in the area of unemployment and GDP, meanwhile the government introduces fiscal and monetary policy, helping the country out of the depression. In my opinion, the UK government should follow closely about the economic potential of developing countries and to seek more business opportunities. Then, Britain should strengthen cooperation with European. Finally, the UK government should pay attention to balance the policy, preventing the unstable economy. Though the financial markets are gradually stabilized and the global economy is improving, government should insist on using the monetary and fiscal policy till the end of recession.