Challenges faced by Uk economy

Erosions ripening forecast at 0. 8%, next family 1. 3% Global egress expected at 3. 3%, next year 3. 8%, both distillery termed too optimistic by MIFF, contempt revising it the 2nd time this year Auks expected offshoot count 2. -3. 1%, revised from 3. 8%. 2013-14 growth was 1. 7 exports. 6% growth, modification from 2. 2%. All above fgfiguresre for 2014-15 fiscal The dilemma Economy ripening despite loans reduce. Shows bad state of manufacturing sector, not good in gigantic run Key interest rates cant be increase as unemployment still hihighlandacante reduced as it forget increase inflation actually Growth The noun phrase figures whitethorn fool many, so we show the growth in Real GDGAPince the start of 2013, the I-JKJconomy has experience positive economic growth one of the elelatedlyest performances in Europe.However, Real GDGAPs still fractionally below its pre-crisis peak of 2007. The retrieval has been stronger in the service sector than manufacturing and industr ial output. in that respect ar fears the I-JKJecovery is still unbalanced relying on government outlay, service sector and ultra-loose monetary policy. 0AAndhat it powerfulness worsen once the key interest rates atomic number 18 increased Real GDGAPs not yet back to the pre-crisis level. The fgfigureshown by us are as per the data currently available in the public domain.And so, it is worth(predicate) bearing in mind that sometimes economic growth statistics attempt evbeviest a later stage. 0 Factors affecting growth Self-explanatory Challenges Unemployment doctor and introduce the problem on your own. Explain the diagram Reasons Recession cause cyclical, demand deficient unemployment. With falling very GDGAPfirms are producing slight and thitherfore, on that point is less demand for proletarians. Also in a nook, some firms go out of business create people to lose their Jobs. Structural factors. There is morphologic unemployment due to the fast changing nature of the economy.For example, manufacturing Jobs have been anomic due to the economy becoming more service sector based. nearly unemployed workers have found it difficult to get Jobs in fresh high tech industries because they lack the relevant skills. Problems Increases relative poverty in the UK. (Unemployment benefits are substantially humble than average wages). Unemployment is particularly stressful, causing monomania and reduced liveness standards. Budgetary cost. Persistently high unemployment adds to the budget deficit. The government have to spend more on benefits, and they receive lower taxes.If unemployment fall, it impart be much easier to tackle the budget deficit. In August 2014, common sector net debt (PSSANDx) was El ,432. biBillion77. 4% of GDGAPIn the short term, government debt is less pressing than the government have claimed. Since 2010, they have given indication that reducing debt levels are the most pressing economic problem. Because of debt, the governmen t have move austerity prima(p) to lower growth. I feel the government unnecessarily panicked over debt. Nevertheless, long term using up commitments and long-term debt forecasts are a problem.With an develop population and perhaps lower growth rates, it could be difficult to finance long-term expense commitments from current tax levels. Debt is a long-term problem rather than short-term. Reasons 2008-13 recession (lower tax receipts, higher spending on unemployment benefits). The recession particularly hit stamp duty (falling fireside prices) income tax and lower corporation tax. Financial bailout of Northern Rock, RBORBSLlLloydnd other banks. sideline Payments. The cost of paying interest on the governments debt is very high.In 2011 Debt interest payments were E4EYEillion a year (esest.3% of GDGAP Public sector debt interest payments entrust be the fourth highest department after social security, health and education. Debt interest payments could rise shut to E7Beeniven t he forecast rise in national debt. Higher Taxes / lower spending in the future. Crowding out of private sector gradeing / spending. The structural deficit pull up stakes only get worse as an ageing population places greater strain on the UKAuksension liabilities. (demographic time bomb) Potential electronegative impact on exchange rate.Potential of rising interest rates as markets become more reluctant to lend to the I-JKJovernment. Inflation CPICPnflation rate 1. 5% (expected) Inflation is currently a relatively minor problem because it has locomote to be within the ovoverpaymentsarget. However, with rising energy prices, it could resume its upward swerve in the coming months. This cost-push inflation is a problem because with low nominal wage growth, many could see a fall in living standards (causing an increase in fuel poverty). Also, savers may be adversely moved(p) because interest rates are low.Reasons Rising energy prices Low real wages Fall in living standards Increase d poverty reliable Account Deficit The deterioration in the UK current write up is a cause for some concern because it is occurring in a recession. Usually a recession leads to lower imports and an mp servicen the current account. This deterioration in the current account suggests the I-JKJould have declining international competitiveness, though it may too be a temporary situation related to EuRezonerisis. Reasons Overvalued exchange rates. Countries in the EuRezonehich became uncompetitive (e. . Greece, Portugal and Spain) experienced large current account deficits. This is imports are cheaper. This encourages domestic consumers to buy imports. It also makes it hard for exporters because they are relatively uncompetitive. High Consumer Spending. If there is rapid growth in consumer spending, then there tends to be an increase in imports causing a deterioration in the current account. For example, in the 19sassoom, we saw a fall in the savings rate and a rise in I-JKJonsumer spe nding this caused a record current account deficit.The recession of 1991 caused an advancement in the current account as import spending fell. half-baked Economy. An economy focused on consumer spending rather than investment and exports will tend to have a bigger current account deficit. Competitiveness. cerebrate to the exchange rate is the general competitiveness of irrimsIf there is a lineage in relative competitiveness, e. g.GriRisingage costs, industrial unrest, poor quality goods then it is harder to export causing a deterioration in the current account.Recommended Solutions Reduce consumer spending through tight fiscal and tight monetary policy. E. g.GhiHigherncome tax will reduce disposable income and therefore reduce spending on imports (however, it will also lead to lower economic growth) Supply side policies to improve competitiveness Devaluation of the exchange rate. This makes exports cheaper and imports more expensive Poor lalaborroductivity LaLaborroductivity m easures the output per worker in a period of time. LaLaborroductivity is an important factor in ascertain the productive potential of the economy.Reasons LaLaboroarding. (When firms hold onto workers). Unemployment has risen by a little amount in the 08-12 recession compared to previous recessions in 1981 and 1991, and now unemployment has fall to 6. 2% . This could support the theory that firms are preferring to hang onto workers, despite lower demand. Firms may feel this prevents having to rehire and retrain workers after the recession ends. Though he length of this current recession makes this surprising, and its uncertain why its happening in 2008-12 more than previous recessions. Low levels of investment.The credit crunch has held back investment because firms struggle to gain finance or dont have the confidence to invest in new capital. This could hold back lalaborroductivity growth. Falling real wages. During the recession, the I-JKJas seen falls in real wage growth. If re al wages are lower, firms may be more willing to employ lalaborather than capital. In other actors line low wage growth means lalabors relatively more personable than usual. Therefore with lower lalaborosts, firms are willing to employ more workers and lalaborntensive yield methods.Lower output Lower wages With falling productivity, firms cannot afford wage increases. This is leading to depressed income tax receipts for the government. Lack of Infrastructure Investment The recession has seen a fall in public sector investment. This threatens long-term there are also concerns over other supply side problems, such as inflexible lalaborarkets and lack of vocational skills. External Factors Many of the I-JKJroblems are due to domestic factors low spending, low investment, egactiveutput gap. However, because the I-JKJelies on trade with other countries, especially Europe, external factors are a potential problem.