Ben Varian Tr 19/09/2014

The Macroeconomic Performance of Britain

The recent macroeconomic performance of Britain can be measured using a
number of different indicators: Its economic growth (!"#$ %e&e%s of unemp%o'ment$
the rate of price inf%ation (i(e( the annua% percentage change in the price %e&e%# and
trade) the ba%ance of pa'ments in trade in goods and ser&ices and net f%ows of
in&estment income * representing the effects of trade and in&estment between
countries(
Britain is one of the wor%d+s %eading ad&anced economies) it has
en,o'ed consistent and sustained growth for a &er' %ong period of time$ as shown b'
the rise in !"(
This period of continuous growth stretches bac- to 1992$ the %ongest sustained
e.pansion for o&er fort' 'ears( /owe&er$ in 2000$ rea% !" grew b' 1(12$ the
s%owest pace of growth for twe%&e 'ears(
Ben Varian Tr 19/09/2014
3&er 24 per cent of the 56+s !" in 2000 came from e.ports of goods and ser&ices(
Imports amounted to 71(0 per cent of nationa% income %eading to a %arge trade deficit
in goods and ser&ices with other countries(
The components of the 56+s current account ha&e changed radica%%' in recent
'ears) the 56 has shifted from being an industria% nation with %arge mining and stee%
industries to a more ser&ice based trading power( 8o much so that it is the second
biggest e.porter of ser&ices in the g%oba% econom' and ran-ed eighth in g%oba% e.ports
of goods( In 2009 the 56 wi%% contribute 7 per cent to g%oba% output( But the huge
trade deficit sti%% remains$ the reasons for this being that 56 consumers ha&e a &er'
high margina% propensit' to import (:":#$ meaning that imports wi%% a%wa's be
greater than e.ports therefore there wi%% a%wa's be a trade deficit with goods( ;%so the
strong sustained growth of rea% !" which the 56 has e.perienced has %ed to an
increased demand in inputs( <ina%%' the strong e.change rate has had a %arge impact
on the 56 trade deficit) it has caused a %oss of price competiti&eness for e.porters
with imports appearing re%ati&e%' cheaper to consume( Thus whi%e the consistent rise
in !" has genera%%' been positi&e it does incur negati&e effects as we%%(
Ben Varian Tr 19/09/2014

The diminution in 56 price competiti&eness and rise in consumers+ :": has
incurred a shift in the focus of the 56+s internationa% trade( ;s a resu%t of this change
in the 56+s ro%e in internationa% trade$ emp%o'ment in the 56 manufacturing Industr'
has more or %ess continua%%' diminished annua%%' for the past thirt' 'ears(
The si=e of Britain+s pre&ious%' massi&e coa% and stee% industries has been
significant%' reduced in recent 'ears
/owe&er the
occupationa%
immobi%it' of
%abour has
decreased significant%' as we%% in con,unction with the rise in !" and the shift in
Britain+s ro%e in internationa% trade(
;s a resu%t of this 56 unemp%o'ment has been e.treme%' %ow and the main
e.p%anation for it is the 56+s growth) more growth$ means more demand which
means a greater demand for wor- and therefore reduced unemp%o'ment( But growth
does encourage other secondar' factors which a%so he%p to bring down unemp%o'ment
e(g( increased foreign in&estment brings more ,obs$ increased spending on education
Ben Varian Tr 19/09/2014
and increased spending on wor-er training$ these a%% ha&e contributed to the dec%ine in
unemp%o'ment in the 56+s recent economic histor'( >hi%e in 2000/09 there has been
an increase in unemp%o'ment it is on%' a &er' gradua% one which wi%% probab%' be
rectified within the ne.t few 'ears as the 56 aims for what was once thought
impossib%e: 1002 unemp%o'ment (discounting fractiona% unemp%o'ment#(
The fina% aspect of the 56+s macroeconomic performance which I am going to
consider is: inf%ation( "rices in Britain and a%% around the wor%d o&er the past twent'?
thirt' 'ears ha&e risen consistent%' and rapid%'(
This has happened in con,unction with the rise in the 56+s !"
Ben Varian Tr 19/09/2014
The 5nited 6ingdom is one of the wor%d+s %eading ad&anced economies( It has the
second %argest econom' in the @uropean 5nion (@5# behind erman' and ,ust ahead
of <rance and In terms of per capita nationa% income$ the 56 is ran-ed in the top
fifteen nations of the wor%d and in 2009 it is forecast that the 56 wi%% ha&e a per
capita income (""" ad,usted# of A71$029 some distance behind that of the 5nited
8tates and a%so Borwa' and Ire%and$ two of @urope+s richest countries(