The understanding of what has happened in Great Britain’s economy over the last two years

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Introduction

The Great Britain has experienced one of the most devastating crises since 2007 following the famous economic catastrophe that hit the entire Europe. The crisis has come to be known as the European crisis since has affected most of the countries that lie within the euro zone.

Since the United Kingdom is one of such countries, it has also been affected by the disaster. Researchers have indicated that the root of this financial crisis is the inability of most of the European countries to repay their financial debts. With such a calamity, countries must be bailed out through the help of third parties.

Great Britain has enacted various economic policies to emancipate itself from the crisis. The Bank of England has also enacted various economic pacts in an effort to get Britain and other European nations out of the crisis. The European crisis emanates from both the government and the private sectors’ inability to repay their debts. Both the British government and the Bank of England have been trying to revive this economy but with little success.

However, the crisis is not yet solved. In fact, over the last two years, the Great Britain has experienced a double recession. Therefore, the paper seeks to discuss the question of whether the British government and the Bank of England have been successful in running the economy over the last two years. The paper also endeavours to describe and evaluate the main macroeconomic policies that have been used by the British Government and the Bank of England over the last two years.

The Extent of Success of the British Government and the Bank of England in Running the British Economy over the last two Years

The British government and the Bank of England have not been successful in running the British government in the last two years. Although the British economy has experienced a recession since the year 2007, this downturn has doubled in the past two years. In fact, within the last three years, this economy has sunk twice.

Worse still, the rate of unemployment has increased especially in the financial and construction quarters. The beginning of the crisis in England was in 2007. In this year, government and private sectors’ debt started rising very fast because of the increased levels of private and government debts in the world and the downgrading of debts owed by government in various states in Europe. Because of the increase in property bubble, the private sector easily became autonomous.

This impact was also attributed to bailouts by various banks in Europe including the Bank of England. The Bank of England was responding to instructions from the government of England in reaction to stopping the post bubbles effects of the economy. At this point, individual states in Europe have begun to tackle the problem individually. Consequently, the crisis has threatened to split the European Union.

Surprisingly, the Bank of England being one of the most established banks in Europe has contributed to the current recession problem facing its country. This bank helped Greece to cover its financial position for a long duration leading to the worsening of the crisis, which still affects the United Kingdom today. The inability to sustain the wages and pensions by the government of Greece led to accumulation of debt.

This debt crisis has negatively affected the United Kingdom over the last two years. However, Greece tried to conceal its fiscal position through the aid of major well-established banks in Europe.

Some banking institutions benefited from this action although it was short lasted since the crisis soon became so glaring. Since the Bank of England is one of the largest banks in Europe, it had a hand in the formation of this crisis. For this reason, its efforts to solve this crisis over the last two years have not born any fruits. The crisis continues to grow from bad to worse.

The government of the United Kingdom has been trying to end this crisis with no success. The greatest hindrance has been the use of a single legal tender by the whole European Union. Since the euro zone uses one currency though with a variation in taxation and public pension system, the government of England cannot respond to this crisis with competence.

The Bank of England has been struggling to clear its debts over the last two years. Most banks in the European region have big debts, which make them have their solvency questioned. This issue has influenced more negatively on the economy of England. The rate of inflation has doubled followed by a cut in tax limitation meaning that the two have not been successful.

It is also clear that the government of England and the Bank of England have not been successful in their efforts to end the economic crisis facing their nation in the last two years. In fact, the two have contributed to the worsening of the crisis witnessed in the last two years. According to Deirdre (2008), in 2008, the Bank of England experienced a decline in mortgage up to the 70% mark. It was only in 2010, 2011 followed by 2013 that the economic crisis in Europe grew from bad to worse.

The European countries including the United Kingdom are therefore trying various intervention methods though they have not yet succeeded. Such methods include the creation of European financial stability facility, banks writing off 53.3% debts from individual creditors, and the creation of European fiscal compact.

Some of the countries that were worst affected by the European crisis were Greece and Portugal. However, the United Kingdom has also been affected by this crisis. The bank of England has been spearheading efforts to bail out various banks in Europe in a bid to end the European crisis (Gore, 2010).

Today, the government of England is still working out policies to ensure that European countries work together towards ending the financial crisis. The government is doing so by working out plans to integrate the European Union banking administration with an all-inclusive oversight and insurance in an effort to save the collapsing banks. The Bank of England is also working in tandem with the central bank of the European Union.

As Gary points out, the European Union’s central bank is also checking on money flows through the provision of lower rates of interest (2009). This bank is also working hard to salvage the impact of the crisis. Over the last two years, this effort has been done by giving the failing banks cheap loans.

The government of England just like other governments in Europe has also begun implementing the Euro plus Pact. This strategy shows that the government of England is dedicated and committed to see the success of the pact. Therefore, the government has been working hard to end the current financial crisis in England. This pact aims at changing the political standing, the monetary position, and the competitive ability of the European region.

The government of England through its economists has also advised that the country should embark on addition on investments on the public and levying of friendly taxes that consider growth especially on wealth, property, private sector, and financial institutions. This strategy has been implemented over the last two years although there is no tangible positive effect from it so far. The European crisis threatens the unity of the European Union.

The government of Europe has also been advocating for increase in European Investment bank funds. Such political-economic decisions have also influenced politics and leadership in some European countries, for example, Greece, Ireland, and France. One can therefore deduce that the government of England and the bank of England have invested in methods of ensuring that their nation gets out of the European crisis. However, their efforts have not been effective. It is even predicted that this recession may continue up to 2014.

The Main Macroeconomic Policies used by the British Government and the Bank of England over the Last Two Years

There are various macroeconomic policies that have been used by the British Government and the Bank of England over the last two years to address the issue at hand. The policies are based on the premise that product market and labour keep on changing implying that the recession that England is facing is temporary. The economy of Britain may have remained in recession since 2007 due to the rigidity of prices and wages.

These two facets can make the economy stagnate below its full potential for a long time. According to Fried (2012, p.100), the major drawback to enactment and implementation of policies geared towards economy recovery are reduction of nominal wages and prices. For example, every trade union will completely go against the reduction of wages while employing companies would celebrate wage reduction in order to cut on cost.

The government of England has enacted policies to ensure consumer confidence in the economy by encouraging consumers to spend their disposable income. This policy also involves consumer protection, which regulates consumer financial services and products to attain similar standards. The consumer protection agency also ensures that accurate information is disseminated to the consumers concerning products and even services.

This strategy will protect customers from hidden charges, deception, and abusive conditions during the exchange of goods and services. Should consumers put confidence in their economy, the rate of recession would decrease. The government has also put measures to reduce the amount of income tax available for disposal thus increasing buyers’ confidence to spend their income rather than to save it.

The second policy being implemented by the bank is the formulation and execution of monetary policies. The Bank of England has cut the interest rates severally over the last two years aiming at stimulating the demand for loans by consumers or borrowers. When the interest rates are reduced, people will develop the confidence to borrow and spend their income.

According to Conway (2008), the heavy borrowing has led to a huge economic deficit impact in Great Britain. People also gain confidence to invest in the economy. This policy is also used to ensure that England develops at the same level with other members of the European Union.

The other policy that has been enacted by England’s government is the fiscal policy. The government has come up with fiscal policies that expand on the previous policies because such policies can help an economy get out of recession. Fiscal policies also involve correction of key aspects of the regulatory framework that control elements like accounting standards, capital rules, and credit controlling agencies.

The policies also help in solving the question of unemployment. Unemployment resulted from inability of the governments in England to repay their debts hence reducing the available income to pay employees. However, regardless of these policies, this problem still affects England. Through such fiscal policies, governments are able to reduce crowding in the economy because the policies make the government spend its funds as a way of reducing the amount spent by those in private investments as applied by the British government.

The government of England has also worked very hard to control deflation through price regulation across the country. It is important to manage depreciation since customers will withhold their money when they realise that prices of various goods are likely to go down in the future.

This situation can retard the economy. To avoid it, the government enacts micro-prudential supervision, which will supervise and regulate thrifts, banks, holding companies, and the non-bank institutions. This strategy majorly covers the financial organisations and utilities of financial markets.

The government of England has also enacted policies to guard its economy against supply shocks under the premise that, when the prices of supplies hike very much, prices of goods and services shift. Hence, there is a reduced economic growth and increased inflation. This policy also includes the enactment of Macro-prudential supervision where countries create financial stability oversight councils to identify the risks that may threaten the financial wellbeing of the nations or promote market discipline and communication.

For example, this supervision has provided the economy with a financial cushion from losses of both non-financial and financial institutions in case of a crisis. It has helped to heighten response to threats that may emerge in the financial wellbeing of the countries.

Conclusion

In conclusion, the United Kingdom has faced economic recession since 2007 because of the wider European crisis that has been ongoing. The European crisis is the economic crisis that has affected most countries in the European zone since they become unable to re-finance their debts without the intervention of third parties. Efforts by the Government of the United Kingdom and the Bank of England have not been able to overcome the menace.

Although the bank has intervened severally in a bid to cut down the interest rates, the recession has grown to worse. This crisis has made the Bank of England unable to pay its wage bills and or even control its lending rates. Out of the credit boom initiated by big banks, global equities and real estate resulted in a dangerous lending behaviour across Europe (Foldvary, 2008). It has also reduced profits in many financial institutions in England.

In England, the government has taken various measures in the form of policies in a bid to ensure that it cushions its nation from the effects of this recession in the form of macroeconomic developments in the country’s economy. The government of England has also enacted policies to guard its economy against supply shocks. The government of England has also worked very hard to control deflation. The other policy that has been enacted by England’s government is the fiscal policy as discussed amongst other policies.

References

Conway, E 2008, Gordon Brown policies ‘piling up budget deficit. Web.

Deirdre, H 2008, ‘Nationwide warns of recession as house price drop doubles’, The Times. p. 5.

Foldvary, F 2007, The Depression of 2008, The Gutenberg Press, London.

Fried, J 2012, Who Really Drove the Economy Into the Ditch, Algora Publishing, New York.

Gary, D 2009, ‘Bank ‘prints’ £75bn and cuts interest rates in half’, The Times, p. 4.

Gore, C 2010, The global recession of 2009 in a long-term development perspective’, Journal of International Development, vol. 22 no. 6, pp. 714-38.

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