Evaluate the current status of the UK economy

Evaluate the current performance of the UK economy

Unemployment:

The definition of this is: Number or percentage of a set group with out paid employment, but are able, available and willing to work.

In recent months unemployment has been on the rise in the UK. However over the past 10 or more years unemployment has fallen and the UK has a lower rate of unemployment than most of Europe and a similar one to the USA. This is surprising considering the large decrease in the production sector of the UK economy. Manufacturing has lost jobs every year for the last 7 years.

The Graph opposite shows the number of people in millions unemployed over the last 10 years. As manufacturing and production has decreased other sectors have increased, such as service providers and restaurants and hotels.

Inflation:

The rise in general prices and the reduction in value of money. Inflation is a sustained increase in the general price level. In other words it is the rate at which prices are increasing. It can be measured monthly, quarterly or annually. It is usually measured by the Retail Price Index.

Inflation has been on the increase recently with some areas such as some products coming from the negative inflation into a small positive inflation. Inflation in the services sector has remained about even on average over the last 5 years; however the average inflation has increased due to the production sector. More recently the overall inflation in July was 2.4% which in August increased to 2.5%.This is the fourth month in a row that inflation has been above the Government's published target of 2.0%. This has been caused due to an increase in prices and inflation in most retail ...

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Gross Domestic Product:

A measure of economic activity within the UK. Gross Domestic Product (GDP) is a measure of National Income. It is the total value of all goods and services produced over a given time period (usually a year) excluding net property income from abroad. It can be measured either as the total of income, expenditure or output.

The graph above shows the increase in The UK’s GDP per quarter over the last 5 years. This shows that on average our economy has been improving, with an increasing rate of revenue. The output of the production industries fell by 0.2 per cent in the latest quarter, following growth of 0.8 per cent in the previous quarter. While output of manufacturing industries grew by 0.6 per cent, this was more than offset by a 4.0 per cent decline in mining and quarrying and a 3.0 per cent fall in the output of utilities. This shows that although some areas of our economy have been in decline other areas have been growing and therefore compensating, adding into this the growth of the service sector by 1% in the second quarter, it means that the economy is still growing.

Trade and Exchange Rate:

The exchange rate is the price of one currency in terms of another currency. For example, the exchange rate between the £ and the $ may be £1=$1.65. This means that you need to pay a price of £1 to get every $1.65. Exchange rates can be fixed or floating. Fixed means that they stay at the same value as set by the government. Floating means that they fluctuate day to day according to the market. More generally the term can also refer to the price at which any good is being traded for another good.

The Trade rate can also be known as the effective exchange rate, this is based on a "basket" of currencies, and so is in effect an average exchange rate for a number of currencies. The currencies in the basket are weighted to reflect the importance of each currency to the UK. It is expressed as an index number.

Exchange rates of a currency can either be floating; a currency exchange rate that is determined by buyers and sellers without government intervention. A floating exchange rate system is where the external value of the currency is allowed to find its own value against other currencies. The value will be determined by supply and demand in the foreign exchange market. The value will then rise or fall according to changes in supply and demand. Or it can be a fixed exchange rate where a government controls the exchange rate of the currency by buying and selling large stocks of the currency to maintain a stable monetary value. A government can also intervene on a floating exchange rate to try and gain an advantage; this is called ‘Dirty Floating’.

Interest Rates:

Interest is the reward for giving up use of money and is an amount paid to a lender over and above the original sum borrowed. The rate is expressed as a % per annum. The rate of interest can be thought of as the price of money. It is the extra proportion that has to be paid when borrowing money or the extra that a saver receives when putting their money aside for the future (unless they keep it under the mattress). The level of the rate of interest is determined by the Monetary Policy Committee of the Bank of England that meets each month. They decided the Bank of England Base rate; this is the rate of interest on which financial institutions base their lending rates. It is used to set all their other interest rates. Their loan rates will be a certain percentage above the base rate, and their savings rates below. When they change their base rate, this will then automatically change all their other rates.

The current Base rate is 4.75%. This has been gradually increasing this year but has remained the same since august when it rose by 0.25%. Real interest is the expression given to the interest charged by lenders after taking inflation into account, the actual interest received.

By Matt Elliman