UK Economic Policy an Analysis of the Essay

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UK Economic Policy

An analysis of the latest figures for key economic indicators and the factors which have affected these indicators. This should include the figures for unemployment, inflation and economic growth

Unemployment

Unemployment is one of the key economic indicators in the UK as well as in all modern nations. Unemployment in the UK rose for the fourth consecutive quarter in Q3 2012 with an increase of one hundred thousand people which also represents the strongest quarterly growth rate since 2007 (Office for National Statistics, 2012). Although the unemployment rate is still above seven percent overall which is still high, it has made substantial gains since the recession. Much of the employment activity though seems to be driven by the public sector which is the fastest growing sector in the economy.

Figure 1 - Unemployment Rate (Office for National Statistics, 2012)

Inflation

The inflation indicator used in the UK is called the Consumer Prices Index (CPI) and is determined by price movements of a lot of different items that consumer typically purchase on a regular basis. The CPI remained unchanged for three months in a row and showed that prices increased by an overall amount of 2.7% in the year ending December 2012 (Office for National Statistics, 2013). There is a special indicator that is focused on retail items that increased by a little over three percent which is significantly higher than the average rate of inflation.

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Furthermore, utilities rose with the price of gas but this was offset by other items in the CPI such as airline rates which have not increased in price. A new measure of consumer price inflation (the CPIH) is also set to be launched in 2013 and will include owner occupied housing costs.

With the low inflation rate that the country is currently experiencing as well as the threat of a possible recession, the Bank of England is in a position to use monetary policy to try to prevent the economic growth rate from falling. If they chose to do this they would keep interest rates low and buy bonds. This would work to inject more cash into the economy and raise the amount of money in circulation. However, this could also raise prices. If there is more money in circulation then there will be more of a demand for goods. With the demand increases, suppliers naturally increase their prices so that they balance supply in demand. So if the Bank of England uses monetary policy to help the economy in the near future then this should have an impact on the CPI rate.

Economic Growth

The economy on the whole appeared to do better in 2011, but since that time there have been indicators that might point to the possibility of another recession. For example, production Furthermore, production on a seasonally adjusted basis rose by 0.3% between October.....

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