Vulnerability

of

two

Engineering

Sectors

to

shocks,

exchange rates and commodity prices

Contents
Contents..................................................................................................................... 1 Abstract...................................................................................................................... 2 Chapter one: Introduction...........................................................................................3 Chapter Two: Literature Review.................................................................................8 Chapter Three: Research Methodology.....................................................................17 Chapter Four: Data Analysis.....................................................................................21 4.2 Mechanical Engineering Sector of the United Kingdom (measured by manufacturing sectors output).............................................................................23 Exchange rates and aggregate demand...............................................................27 Chapter Five: Conclusion..........................................................................................34 Bibliography.............................................................................................................36 Appendix A: Oil Prices...............................................................................................39 Appendix B: Steel Prices...........................................................................................68

Abstract
Engineering sectors of a country contribute in the economy to a great extent. The sector of engineering in United Kingdom is making the 5th part of the overall economy of the Great Britain. It makes approximately 20% of the entire GDP. As the engineering is the basis of many other sectors development like in technology, research and development. The primary resources for the generation of facilities are scarce and regulated the manufacturing of other things used in the society. This research paper focuses on the civil engineering and the manufacturing sectors and proves their vulnerability to the demand and supply shocks, exchange rates, and the commodity prices. The overall goal of this paper is to study the effects of these economic concepts on these two sectors. Eventually the economys of United Kingdom in terms of growth and stability is being affected.

Chapter one: Introduction

When in an economy, one has to go through a number of economic shocks due to a number of external and/or internal factors. And since everybody exists in some sort of economy or another, to completely avoid the effects of these factors, good or bad is impossible. Apart from demand and supply shocks to an economy, an economy as a whole or an industry in specific is affected by exchange rates and commodity prices. Both these factors affect the economy (or an industry) through a simple price and quantity relationship. Whereas, change in commodity prices results in an on the line movement, a change in exchange rates leads to a shift of the entire curve itself because as far as imports are concerned, a rise in exchange rate acts as a decrease in the overall purchasing power of an economy with respect to a foreign one. Policy formulation in most countries is complicated by the role of the external economic environment especially during periods when large shocks are taking place. (International Economic Analysis and Prospects Division, 1991) Thus, to ensure efficient policies that would take an economy out of an adverse economic shock and steer it towards the path of success and growth, and policies which will reduce the chances of such adverse economic shocks affecting the economy again need to first study the dynamics of the influence of external factors and that of the economic shocks. Morton and Goodman (2003) describe the exogenous demand shock in the following words,

An exogenous demand shock is a change in an exogenous variable, a variable determined outside the model, which affects aggregate demandas a part of its countercyclical policy, the government both changes tax rates and transfer payments. Exogenous supply shock on the other hand as defined as, The cause of an exogenous supply shock is the change in an exogenous variable, a variable determined outside the model that affects aggregate supply. This paper is going to talk about the effects that the exchanges rates of a country, the economic shocks and the commodity prices have on the engineering sector of an economy. These three factors that will be discussed in the paper that is going to follow are actually the three perspectives of the effect that goes on in the engineering sector. The performance of two engineering sectors has been taken into account. The first one is the civil engineering sector and the other one is the mechanical engineering sector. 1.1 Significance of the research paper This research paper is significant because it analyzes the impact of three important factors with two extremely important sectors of the United Kingdom economy. It worthy of mentioning here that, the 2007 recessionary crisis has its roots in the construction sector of the United Kingdom and, the great depression of 1930s has its roots in the manufacturing sectors market failures of the United States of America. Meanings to say that civil engineering and mechanical engineering sectors are two indispensible tools for the performance of an economy and therefore any research that is conducted on the two is significantly important. 1.2 Research background:

The background of the vulnerability of these two sectors, towards the shock and eventually exchange rates and commodity prices is very crucial to the understanding of the current economy decline. The most common topic in talk shows, newspapers and magazines is current financial crisis of United Kingdom. The recession of 2007 lay off thousands of employees. The start of the recession was directly caused by the construction businesses as the investors invested heavily in USA but little did they knew about the approaching negative mood of the economy. People took home loans and the banks lent them money. This increased the demand of houses and the prices increased too. With more money in the banks, the loan agents thought they should expand the money borrowers list and widen their loan disbursement reach. The over confidence made them relax the conditions of the loan. This caused the relaxation to the people to repay the loans. The whole situation went interconnected with the banks and the overall world economic conditions. The recession started because of delayed interest payments. USA, United Kingdom and most of the European countries got badly struck by recession. The vulnerability of civil engineering increased because the constructions businesses had to stop instantly. The eventual affects were obvious at the commodity prices like oil and the overall inflation of the other products in the market. As the middle east increased the prices of the petroleum the whole world as purchaser of petroleum from them were affected. This increased the fuel rate for the manufacturing industry. The push of recession was faced by the whole world. The manufacturing industry sector was struck with the recession after effects. The overall commodity prices were revised and the basic fuel petroleum for the industry machinery was facing the max global crises. The recession took over the overall economy of United Kingdom and the crises were unexpected. The whole of the EU faced these unwelcoming economic turns.

1.3 Scope of the Research paper The research paper has been narrowed down to the economy of the United Kingdom and the sector relation of the two sectors under question with the previously mentioned independent variable. This narrowing has been done because these two sectors and the factors under discussion hold true for all the countries in the world and conducting a research on all of them and compiling it up in a 8000 report was impossible. Similarly, the time period has been defined for this research. 1.4 Research Aims and Objectives: The aim of this project is to compare the two industries effects and involvement in the shocks that change the exchange rates of the currencies and the other commodities prices. The objectives of this paper are: To review the shocks, exchange rates and commodity prices in terms of two sector comparison. The better understanding of the economic moods of United Kingdom. To get the narrow view of the financial crises leading to the vulnerability in economic conditions in United Kingdom. To obtain the better analytical view of these sectors impacting the overall economic shake. 1.6 Reason for the Research focus: This paper will focus on the shrinking effect of the economy by shocks, which do affect the exchange rates altogether in United Kingdom markets. As shrinkage occurs, the rate of the pound falls and the indices are pushed down to a considerable number of points in the stock exchanges. The prices change directly due to slump in the demand of the commodities. This

phenomenon is recession triggering. The GDP of Britain had been fluctuating with a variable speed. The GDP; Gross Domestic Product, of United Kingdom may fall with the shrinkage and may cause the recurrence of the double dip. This double dip will cause the shares to go down directly affecting the businesses. The commodities prices like steel and petroleum are subjected to the government intervention. The best policies formulation by the economists is the fundamental requirement at this point. With all of these economic imbalances United Kingdom is struggling with the recession and pulling out of it. Without the faster reaction to the exchange rates and the shocks, the recession will be worsening. It could get worse than the recession after the World War 2.

Chapter Two: Literature Review

The engineering sectors are the builders of a country and improve their development. The economy of the country is directly related to the success and failure of the engineering sector in achieving their goals as the government allocates a lot of funds for the research and developments in the annual budget. The scientific sectors and the manufacturing sectors of the business are interlinked through a lot of ways. This interlinking is shown through their impacts on the overall economy of a country. The sixth largest economy of the world is owned by United Kingdom. Most the energy demands are covered by the petroleum and gas. The industrial sector is completely dependent on these to fulfill their fuel requirements. United Kingdom civil engineering sector makes the second largest in Europe. It employs more than 2.1 million people. The constructions make the 8.2% of GVA. The manufacturing engineering inputs a great contribution of 75% of R&D businesses in the economy (Excellis 2009). Recent news at Sky, indicate that there are more drastic effects of the recession on the civil engineering industry. The same trend has been observed in the manufacturing engineering sector. According to a research during 1970s 7% of the employment fall was observed in Britian. (Ajit 1977). The shocks in constructions business affect the overall civil engineering sector and jeopardize the development. It casts a negative impact on the exports too (Guillaumont, Jeanneney et al. 2004). The recession in the United Kingdom affected the civil and manufacturing engineering and hampered the business causing shocks. The society was affected by the increased unemployment in the engineering firms. The increase in demand of the highly skilled professionals is another reason for the shocks produced in the

economy of United Kingdom. The manufacturing and civil engineering sector requires the proficient employees to work well (Ajit 1977). The United Kingdom manufacturing engineering sector has become very diverse over the years. There has been an increasing expertise and the jobs availability. The jobs in Sales, R&D, post production jobs, and operations are diverse than those before. The more skilled labor is required to fill these job posts. The manufacturing sectors remain vulnerable to the global downturn. This is causing the varying trend in the manufacturing purchasing index. The domestic and export prices are falling. The investors are putting fewer shares in the market. United Kingdom has invested in last twenty years in 2% of the GDP. Eventually the GDP of the in 2003 was 1.9% as compared to the GDP of 1983 which was 2.2%. The future targets are high to achieve 2.5% GDP by investments (Excellis 2009). Commodities are the raw material or semi processed things such as cotton, oil, gas, coal and other minerals. These are the major exports of the developing countries. The exports of these commodities have a deep impact on the economies of the countries exporting and importing them. These commodities prices fluctuate with the globalization and liberalization. Africa earns 90% of its exports earnings from commodities (Solignac-Lecomte 2003). Lack of investment in United Kingdom manufacturing engineering sector has lead to industrial crisis in Britain holistically. This is increasing the gap of productivity between United Kingdom and most of its industrial rivals. There is an increasing trend of rapidly growing services sector putting the manufacturing graph down. The government has to offer some subsidies to the manufacturing sector to bring it to the surface from the depths of recession (EAMA 2007).

Commodity prices are volatile and are dependent on the affects of external shocks. This can result in poverty and lack of funding to education and health sector (Solignac-Lecomte 2003). The manufacturing sector of United Kingdom showed an empirical analysis of the impact of price shocks on overall economic growth during 1970s. When the inputs prices rose there was a considerable decline in productivity growth which lead to the real wage growth, thus; capital accumulation. Both demand and supply shocks played a significant part in the total decline of economy. When the commodity; particularly petroleum, prices raised and so did the competition with the rivals. This resulted in productivity growth. Not this but the unemployment results that gave a jolt to the economy altogether (Bruno and Sachs 1982). According to Buiter and Miller (1981), the very distinct frequency of unemployment occurred during the Thatcher experiment due to demand shocks (Buiter, Miller et al. 1981). The short run decline in output and productivity is observable after the varying impact of the input price shocks. In the long run the productivity, growth, capital accumulation and real wage growth are observed as slowing down (Bruno and Sachs 1982). In general these shocks are of two types that affect any economy; the demand and supply shocks. The demand shock strikes when the restrictions of variables show that their long term effect on the productivity is zero. Whereas, the supply shock has solid permanent affect on the output (Fidrmuc and Korhonen 2003). The demand shock disturbances show the hump shaped effect on the productivity and unemployment which is likely to disappear within two years approximately. The supply shocks affect the output that reaches to the plateau after five years. The demand shocks; at the short term and the medium term, make extensive feed to the output fluctuation (Blanchard and Quah 1990).

The exchange rates are eliminated within the Europe due to the Economic and Monetary Union. The exchange rate volatility brings about the macroeconomic cost and its absence is like a benefit. This exchange rate plays a significant role in the adjustment but is also incorporates the arbitrary disruptive element role for the rest of the EU than Britain (Currie, Britain et al. 1997). In the long run the relationship between inflation and exchange rate movements is absolutely unsubstantiated. The trade is directly affected by the exchange rates of pounds through adjustment costs and uncertainty. The indirect effects are more significant. The degree of competitiveness depends upon the exchange rate volatility on trade prices. The exporters are willing to bear the risk the prices will raise, but if importer are willing to bear the risk, then the prices fall (Ct 1994). The manufacturing sector has been outsourcing a lot of commodities. The raw material obtainment from the trusted suppliers at regular basis and at suitable prices is a big achievement of the manufacturing businesses. Over the years, it has become a routine for most of the manufacturer engineers. Nowadays, the value adding functions like Information technology and other machinery is useful. This way manufacturing sector has been bidding on the prices of the commodities and they are prevailing in particular geographic areas (McCarthy and Anagnostou 2004). The United Kingdom manufacturing industry faced the economic recession during 1970s. During the 1980s there was a long-drawn-out period of expansion. During this persistent time, the United Kingdom manufacturing market lost its shares in its domestic and world markets. The GVA fell from 26.5% to 18.8%. A positive change was the increase in job market in the manufacturing sector. The manufacturing industry being the customer of service industry added to a substantial level in the GDP of United Kingdom (McCarthy and Anagnostou 2004).

The commodities prices show sharp challenges by showing clear fluctuations and long run trend movements. The key feature of volatility of the commodity prices is useful information for the policy makers. The duration and peaks of commodity price cycles act as the key inputs to steady the macro effects of earning. The commodity exporting countries like most of the developing countries take the volatile commodity price as the significant policy issue (Cashin and McDermott 2002). Shocks that produce the variations and fluctuation in the commodity prices can exhibit untrustworthy degree of perseverance across commodities (Cuddington and Liang 2000). If the commodity prices shift after the decline from its peak then this means that the prices have moved from boom to slump (Cashin and McDermott 2002). The rise in volatility of the early 1900s was due to greater amplitude of prices movements. The rapid movements of the prices can cause some serious consequences to the economy especially to the real income, trade terms and conditions, and fiscal dependant countries. There are philosophical implications for the macroeconomic stabilization (Cashin and McDermott 2002). The exchange rate and inflation do not conform directly to the fiscal policy rules. These sometimes work much worse than imagination from the recovering from the inflation. It has direct and indirect effects on exchange rates. The indirect effect is beneficial because it triggers less fluctuation in the interest rates (Taylor 2001). The appreciation of the exchange will cause lower GDP. The decline in the output will result in lower inflation. The performance improvements are also directly related to the exchange rates. Civil engineering or the constructions business is directly affecting a lot of other business and economic activities. The construction demand may change with real interest rate, gross national product and unemployment.

The nature of investment determines the latent pointer for change in demand (Akintoye and Skitmore 1994). The investment in the constructions sector causes expansion which means the economic growth. This is because the construction has the multiplier effect on the economy of United Kingdom. This expansion may be growth initiating and/or growth dependent. Construction; in the developed countries, act as the growth dependent, because it makes investment a consequent demand. United Kingdom has recently been showing the rising trend private sector commercial construction whereas, there is a considerable decline in the public sector housing, nowadays (Arku 2006). The recession during 1980-1984 in United Kingdom, set foot for the increased demand in the construction for the private commercial sector. This sudden demand was caused by the lowering of the mortgages interest rates and the tax savings. These interest rates and the general business assurance have a overwhelming bearing on private sector workload (Dove 1991). There is a general attitude of construction investors in constructing school, roads, hospitals and prisons for the public welfare. The financial investors are paying the government to support these public welfare projects, where the government pays them the interest on this investment. The private sector development shares a positive inelastic relationship with the GNP. This is a derived demand emanating from the customers or the firms (Akintoye and Skitmore 1994). The manufacturing sector of United Kingdom is directly correlated to the constructions sector in the private sector development terms. Recently, the houses prices in London are considerably low as compared to the houses prices before the recession of 2007. The real interest rates have a negative impact on the residential investment over long time period (Akintoye and Skitmore 1994). These trends have been explained by the manufacturing profitability and economic conditions.

The manufacturing and civil engineering are quite related when it comes to witness their effects on the economy. The United Kingdom economy has been enjoying a stable graph to the idealistic conditions. The variations caused by the recession were shaky. The effects of recession brought a change in the prices of houses. The effects of recession were drastic on the pounds exchange rate. With the fall in construction business after recession, the pound depreciated from Euro. The shocks to economy, demand for manufacturing goods, and new government policies and demand of goods are the leading indicators of construction demand (Hillbrandt 1985). The construction material, the manufacturing goods, the commodity prices are all environmental variables. The suppliers to material and raw material bargain on the prices of the commodity they are supplying. The good rate is set according to the good negotiation skill owned by either of the parties. The British manufacturing industry is contracting since last four years. If this goes on like this, then 15% of the manufacturing industry will have to be compromised. Two million employees would have been laid off. During 19701974, there was down fall of 7% in the employment at the manufacturing sector. That time each year, 180,000 people were being laid off. The net contraction of the manufacturing sector was as drastic as 120,000 (Ajit 1977). The economy stability of United Kingdom has been exemplary. Over the last five years, the economic recession flattened a lot of businesses and the employment situation. The constructions businesses were the most affected. Most of the construction companies wound up because this was the only way left. The trade with other competitor countries, slowed down. It was the recession, but the last year December heavy snowfall also hampered the mobility on roads to the extent that many businesses remained closed for days. 10% of the sales at the petrol stations were declined (Reuben 2011).

It was not only United Kingdom that faced the recession after effects but it was faced by the whole world. The developed countries had the worst outcomes. The developing countries also got the adverse effects. The economies of the whole world are still struggling to overcome the unemployment and the other economic gaps that will take time. The slow and steady efforts towards the recovering and generating the new job posts for the unemployed and laid off is the optimum goal of the government nowadays. The literature review of the United Kingdom manufacturing engineering and civil engineering sectors has been spotlighting the concepts of demand and supply shocks, exchange rates and the commodity prices to the economy of United Kingdom. The GDP has declining effect. The interest rates are increasing. The manufacturing sector and civil engineering sectors are both interlinked to an un-ignorable level. The construction industry has been booming in private sector and declining in public sector. This means that the private investors are willing to take the construction responsibilities of the United Kingdom. The railway tracks and parks are the innovative investment places for the construction (Akintoye and Skitmore 1994). The GBP exchange rates change when there is news in the underlying fundamentals. The empirical evidences show that this exchange rate remains disconnected in most cases from these core fundamentals (De Grauwe, Dieci et al. 2005). The volatility of the exchange rates surpass the other affecting economic variables when they are volatile (Baxter 1991). The equilibrium of the exchange rates is possible but is a very rare condition. It occurs only when other fundamental variables become considerably small (De Grauwe, Dieci et al. 2005). The adverse effects of recession on the construction sector have been putting the construction businesses under the surface even in 2011. The first quarter of 2011 was not very good for the business. Howard Archer if HIS

Global insight, says that there are added to the growth concerns. He is hopeful that the first quarter output statistics will possibly be revisable and growing in the second quarter (Wearden 2011). The United Kingdom public is concerned about their money in the banks and the monitory decisions. There was a campaign with 7000 participants, covered by the sky news. In the sky news latest periodical, Tony Woodley; the joint leader of united shared with the sky reporters that What we need is the Government to make sure that some of that money, our money, thats gone into banks comes out into small, medium and large businesses (sky 2011). The economy of United Kingdom is facing the aftermath of the recession. The economy in terms of shocks, exchange rates and commodity prices are making civil engineering and manufacturing engineering vulnerable to these changes.

Chapter Three: Research Methodology

This research is based on the researchers ability to conduct an efficient research and to be able to figure out which data is important for the research project and which is irrelevant. Then again, finding out the right data is a challenging task given that the period selected for the task is 1997, 2002 and 2007. The official data was sometimes beyond access and therefore very difficult to find. The aspect of data collection will be analyzed in the limitations of the research. The research methodology portion as a whole is going to describe the methods which were employed for the conduction of this report. Because of the challenging nature of the data, it was very important that the research methodology was carefully crafted out and that it be described as efficiently as possible to the reader. This section then serves precisely that purpose. 2.1 Research Design The design for this research was a mixed approach meanings to say that both a secondary data collection and a primary data collection was conducted. Also, both a quantitative and a qualitative approach were employed to fully analyze the collected data. The results have been shown in graphical formats for better analysis and the analysis has been presented in chapter three of the research report. 2.2 Primary Data collection For the primary data collection, three variables were of focus. i) UK pound to US dollar exchange rate for the period 1995 to 2009 ii) The commodity prices for steel (hot rolled steel) and oil (WTI crude oil) for the period 1995 to 2009

iii) The supply and demand shocks to the economy of the United Kingdom by measuring the GDP for the United Kingdom for the period 1995 to 2009 The aim was to correlate the movements in the above mentioned variables to the performance of two engineering sectors i) Mechanical engineering sector measured by output changes of the manufacturing sector ii) Civil engineering sector measure by the output changes of the constructions sector The data was collected from various official resources especially the national office of statistics for the United Kingdom. The detail of the data collection resources has been provided in the references section and the table has been provided in the appendix of the report. Primary data forms the raw data on which any analysis or study has not been done and this was needed for this report to analyze the effects of the three independent factors on the two dependant ones without any biases of previous analysts. Moreover, the report wanted to have a fresh chance to analyze the trends. Some data was available in table formats easily and thus has been included in the regression analysis that is to follow in the data analysis section. On the other hand, some data could (after a lot of research) was only found in graphical representations and therefore could not be included in the regression analysis. 2.3 Secondary Data Collection Any research, according to a subjective opinion is incomplete without a reasonable amount of secondary data. The secondary data is required both to open the mind of the research and to open different avenues of research.

Moreover, the reading and the analysis of the secondary data is to tell the researcher about the dimensions of research that have already been covered, and thus to avoid repeating the same analysis by taking the same route of collection and interpretation. For this particular research, the secondary research focused on the economic shocks, demand and supply, the dynamics, the concepts and the impacts of the exchange rates and the concept and impact of the commodity prices on the economy as a whole, in general terms and on manufacturing and construction sector specifically. Thus, a qualitative and a theoretical study of impacts of the independent variables on the dependant variable were conducted through this. The resources for the secondary research were mainly books and journals available online. Web links and articles published on random websites were completely avoided lest the report ended up including unreliable and incredible information and data. The books and journals used were accessed online because of the ease of finding the required books with the correct and relevant information because of the matching of key words. The secondary analysis then has been used to shed light on the primary data analysis for a better overall approach to the topic and so that the vulnerability of the manufacturing and the construction sector could be studied from two different, but supporting dimensions. 2.4 Limitations of the Research As mentioned earlier, the section of the report is going to talk about the problems that were faced during the condition of the research and the problems that would be faced by the reader if he or she is looking for a perfect regression or correlation analysis between the same dependent and independent variables, which means, an analysis which is low on residuals

and other econometrics problems that company a simple ordinary least square regression analysis. So first things first, the problems faced during the conduction of this research were many. For starters it was the finding out of the data. But the government offices could not be contacted personally, and also because of the bias that everything is easily available on the World Wide Web, it was decided to search for the data online. The data found relevant enough to be further looked into had a couple of problems then again. The first one was that most of the data had to be purchased and since finance was a strong constraint, that could not be done. Secondly, the data that was free and for public information and use, was available in the form of graphs and charts which could not be directly copied. Thus, for regression analysis, the finding of numerical data was an important limitation faced while data collection. Given the problems discussed above, the regression analysis that was expected to be carried out at the starting of this report could not be carried out with the hoped and desired perfection. The research is limited because of empirical imperfection however; it seeks to balance out that imbalance through the secondary research and analysis. The secondary research has helped greatly in covering up for the rough patches that were created by the lack of data for the regression analysis however, the limitation that the research paper has still exists significantly and the reader of this report should strictly take that into account while applying the results of this report. 2.5 Ethical Issues taken into Account Ethical issues form a major part of the research paper that are written and therefore, this research paper carefully takes into account the fact. However fortunately, no major ethical issue formed an obstacle in this research primarily because the data required for this research was public data and openly available. The secondary data that was used for this report

however has been carefully referenced in the project as demanded by the following of copyright rules and policies and also those of the report format. The references are provided both in text and as a bibliography at the end of the report for further reading and study.

Chapter Four: Data Analysis

Economy Watch (Stanley 2011) states that, the economy of the United Kingdom is the sixth largest economy of the world in 2010 according to the nominal GDP and the eight largest economy in the world according to the purchasing power parity GDP. 4.1 Civil Engineering Sector of the United Kingdom (measured by construction industry output) Adamson and Pollington (Adamson and Pollington 2006) note that

construction is the sixth largest industry in the United Kingdom and that in terms of its proportion of the total gross domestic product. In 2002, the industrys output was valued at sixty five billion pounds annually which

actually represented ten percent of the overall gross domestic product. The following graph will depict the trend of output of the construction industry in the United Kingdom.

As shown by the graph, starting from 1996, and the construction industry has shown an upward trend (the data was available till 2006). The theory above however explains the fall of the construction sector in 2008 and 2009 and then its recovery later. Even though the graph from the official record accounts for the trend in the civil engineering sector till 2006, the analysis henceforth explains the till after 2006 to study what routes the output of the construction sector took. Corporate Watch (2011) studies the importance and the trend of the construction industry of the United Kingdom and states that it accounts for ten percent of the Gross domestic product of the country and employs over 1.5 million people. Since 2000, the fiscal budget of the United Kingdom has made substantial increases to the civil engineering sector of the country to improve public services. The 2003-2004 fiscal budgets made an increase of

33 billion pounds to the betterment and funding of the sector which included 4,200 million pounds for transport and 137,000 million pounds for health along with 1,600 million pounds for housing (Corporate Watch, 2011). The interesting thing here is the fact that the civil engineering sector of the economy under question is led by investment, both private and public and therefore, it is prone to the economic fluctuations that any economic variable faces. One important incidence when the civil engineering sector was adversely affected by the recession of the entire economy (aggregated external factors) was in 1980s and then in early 1990s, and then it took an upward turn in the late 1990s, owing mainly to the government financed input into programs such that the public health, education and transportation. Cohen (2011) from financial Times named the construction sector of United Kingdom as volatile and said that in the last quarter of 2010, the output of the sector fell in the official records. The Office for national Statistics (2010) said that the output fell by 2.5 percent however; there was definitely an improvement from the initially low output level of 2009. Monaghan (2010) however noted in the telegraph that the construction sector of the United Kingdom has been the one which has been the most affected by the economic downturn of 2008 and 2009. It has been stated that the total construction on the Purchasing Managers Index (PMI) was 47.1 in December 2009 and that the same index has not managed to improve over 50 since early 2008. 4.2 Mechanical Engineering Sector of the United Kingdom

(measured by manufacturing sectors output) Before the paper can proceed to any further explains, the graph that depicts the trend of the manufacturing sector is proposed to be put forward:

(Institute of Manufacturing 2009) As the graph above depicts, the manufacturing sector for the United Kingdom shows an almost upward trend till the year 2008 and then falls sharply afterwards with its trough forming in the year 2009. The reasons for this can be blamed on several factors including the international recession, increase in the commodity prices and the fall in the currency of the United Kingdom. Even though fluctuating then, the manufacturing sector of the United Kingdom has shown a rather upward trend after the year 2002. The interesting thing to note here in the graph above is the troughs that are forming on the three years that are of special focus to the paper. One trough can be seen to be occurring around 1995, the second at 2002 and the other in 2009 as a result of the 2008 recession.

Figure 1 House of Commons UK, (2011)

The figure above is an important chart published by the parliament of the United Kingdom in response to the studying of the various economic indicators over the years before any substantial policy change is proposed. As clearly visible from the chart above, the manufacturing output took a very deep turn in 2009 and that the industry itself was in the phase of decline since 2008. This means that the recession of 2008 really affected the mechanical engineering sector of the United Kingdom where the output actually fell by 15 percent in 2009 as compared to that in 2008. The fortunate thing over here as depicted by the graph is the fact that the industry again took an upward turn after 2010 and is seen to rise rather sharply after that. It can be said that the pent up demand for the manufacturing output actually drove the industry to new heights, one those did not even exist before the recession in the first place. The analysis of the situation leads the research to seeing that the government input into the sector during the times of the recession really helped the industry to revive and to reach greater levels of success. The reasons for the fluctuation in the trend of output for the manufacturing sector will be analyzed in the conclusion part. For this section of the report, it will be studied further that in 2009 again, the Manufacturing Purchasing managers index also contracted

sharply to become around 45. This has also been studied above. The report by the House of Commons (2011) studies further that the sub sector of the manufacturing industry, most affected by this economic downturn, was the vehicle production sector whose production dipped significantly in the year 2009 however, took a sharp turn upwards after that owing to the various reasons that will be discussed later in the paper. 4.3 Exchange rates The graphical representation for the same has been provided below for a better analysis of the situation.

As visible in the chart above, the exchange rate falls around 2007 and 2008 but the fall in the construction and the manufacturing sector is felt around 2009. This means that the economy of the United Kingdom took time to adjust to the new prices and will the new exchange rate finally made its influence; the imports of the raw materials had become expensive. The apparent delay in the change of exchange rate and the delay of the two engineering sectors can also be because of the previously contracted orders. The recommendation that the policy makers need to derive out of this is that when the imports are low, the capital investments must be contracted so that some price hedge can be achieved in response to a fall in the price of the currency and thus the exchange rates.

One flaw of open economies like United Kingdom is that they are highly affected by changes abroad (Mankiw, Gans et al. 2008). So if a recession is occurring elsewhere, UK exports, investment and foreign exchange will suffer. If a lot of its workers work abroad then even its employment will suffer. But such an integration of an economy with others also provides opportunities to smooth out changes in the business cycle. All depends on the ability of the UK economy to absorb these changes and have policies that eliminate the adverse effects of them. Exchange rates and aggregate demand Exchange rate is basically the value of a currency in terms of a foreign currency (Copeland 2008). Exchange rate is often overlooked as a determinant for aggregate demand; this is because net exports have a smaller effect on aggregate demand relative to consumption, investment or government spending. But still the impact is there quite clear (Samuelson 2005). So, a change in exchange rate will affect net exports and depending on the intensity and direction of this change the aggregate demand curve

will either shift to the right or to the left, thus, moving the economy towards an expansion or contraction as a whole. 4.4 Economic Shocks to the Economy

Figure 2: Office for National Statistics, UK (2011)

One of the ways of measuring the economic shocks that engross a society is through the fluctuations in the Gross Domestic product of the country. For the United Kingdom, this can be seen through the chart presented above. The presence of an almost perfect business cycle is visible and one can argue about the longevity of the current recession, however, this is a whole new debate and therefore, this analysis will stick to the discussion of the trend of GDP in order to study the economic shocks. In the recent past, the gross domestic product of United Kingdom is seen to peak in 2007 and is on the falling trend in 2008. It is important to mention here that due to the policies of the government of the United Kingdom, the recession that actually hit the United States of America in 2007 took a little more time to affect the economy of the United Kingdom. Nonetheless, it did and the GDP of the country fell by almost seven percent in the second quarter of 2009. The GDP then, rose again starting from the third quarter of

the year and has been on the rise till 2010, where again it took a downward turn, but it no fall too deep. The fall in the GDP in 2010 was because of the economy of the United Kingdom being pegged to the Euro which fell sharply due to the Greece financial crisis in 2010. The Most important thing to be noted in the entire discussion is the dip the economy of the United Kingdom took in year 2009. Why this is important then, will be discussed in the conclusion section when this is related to theoretically to the dips that the construction and the manufacturing sectors of the economy took in the same year. The Office for national Statistic (2011) however notes that manufacturing and construction sectors of the economy as well as the mining sector had a very significant role to play in the fluctuations of the GDP as a whole and that if one was to study the fluctuations in the GDP, these three sectors would be of utmost importance.

4.5 The Commodity Prices Steel Prices

Figure 3: LME.com (2011)

The chart above depicts the steel prices in United Kingdom. As seen, the steel prices are seen to peak in the year 2008 whereas they were considerably low in the starting of 2008. After mid 2008, the steel prices are seen to fall sharply. By the end of 2008 however the prices are seen to be on an increasing trend rising slightly again in 2009.

This graph actually depicts the production of steel in United Kingdom and shows a situation which is not very pleasant as far as investment into the steel production sector of the economy is concerned. The labor force employed in the sector is seen to decline after 2001 and then can be seen to be almost constant. As far as the production is concerned however, one can see the fluctuations that exist and see most importantly that the steel production in the country took a low dip in 2009 by becoming 10.1 million tons as compared to 14.4 million tons in 2007 (before the economic recession that is. Before that, even though there was an economic recession, not very major that is however, in the early 1990s, the steel production is not seen to decline. The fall in the manufacturing sector output can be because of the high steel prices in 2008 leading to a fall in demand and thus a fall in the production in 2009. The fall in production of 2009 then again can be seen to have a negative impact on the manufacturing and the construction departments of the economy who seemed to have a supply shock first because of the increase in prices and then because of the shortages in production. The demand of steel in the United Kingdoms economy as explained by EEF (2010) shows that the demand dipped the most in 2009 as

compared to any other preceding year. Not only did the imports of steel fell, the steel supplied by the UK steel mills also fell sharply. This then meant bad news for not only the steel manufacturing industry but also the other sectors of the economy that required steel for their operations. Previously, The United Kingdom has been the twelfth largest producer of steel in the world with quality refining and extracting. However, as of today, major shift of steel production has been towards the Asian countries of the world with China leading the marketing today. Again, this is an example of a supply shock for the economy of the United Kingdom owing to the fact that competition took over the market. However, one can see the change in terms of a demand shock as well considering that fact that the supply fell firstly owing to the dip in demand because of high steel prices. Steel is a basic requirement for both the civil engineering and mechanical engineering sectors of an economy and a very important part of the fluctuations in the output of the two can be determined by the fluctuations in the prices and quantity of the steel. The Oil Prices

The world oil prices over the periods of time have been given in the chart above, because oil is an international commodity with almost the same prices prevailing internationally, any international price could have been chosen. Moreover, since crude oil is internationally measured in terms of dollars, this chart also depicts the value of the oil over years in terms of dollars. As seen above, after 2007, the oil prices have fluctuated really sharply till after 2009. Rising significantly from 2007, the oil prices became over 140 per barrel in 2008 after which they fell sharply again in 2009. This fall in 2009 can be explained simply (however not fully) through the demand and price relationship that when the prices of the oil peaked, many consumers simply stopped using oil. Oil is mostly used in transportation or industrial units for producing energy. Many industries then because of this rise in the oil prices either shifted to bio fuels or geothermal electricity production and therefore, a major chunk of the demand of oil fell in 2009 driving its prices down.

Chapter Five: Conclusion

Finally, this section of the paper is going to study the three factors and the two sectors of the economy. The type of analysis presented here will be conclusive, one that has been drawn from the facts and the analysis of trend presented in chapter four. Now, there are the following facts that need to be stated before any further comparison is done. The civil engineering sector of the economy measured by the output of the construction sector fell sharply in 2009 and improved afterwards.

The mechanical engineering sector of the economy measured by the output of the manufacturing sector fell sharply in 2009 and improved afterwards.

Factors: The exchange rate of the United Kingdom (the buying power of the country) fell in 2008 and increased again in 2009 to fall yet again in 2010 because of the Greece financial crisis The Gross domestic product of the country fell sharply in 2009 becoming the lowest in a long time however it improved significantly after 2009 and the economy today is not the track of growth in terms of GDP.

The steel prices in the United Kingdom peaked in 2008 and then fell in 2009.

The international oil prices rose to their highest historical values in 2008 and then fell again in 2009.

The conclusion that is derivable from the facts in not difficult to see at all and is actually quite apparent. However, for simplicity sake and for the betterment of the analysis, the ceteris paribus effect is assumed. This means that it is assumed that each of the three factors affected the two dependent factors individually while the other factors remained constant. As can be seen then, there seems to be a negative relationship between the oil prices and the steel prices and the output of the two sectors. This is because the rise in the cost of production limits the profits that can be derived from the production and therefore the organizations limited their production to marginalize profits. As far as GDP is concerned however, there seems to be a positive relationship between the two dependant variable and GDP. As the GDP fell, so did the two engineering sectors. It can also be seen in this way that as the two important sectors of the economy fell, so did the GDP. Finally, the exchange rate also seems to have a negative relationship with the two engineering sectors because a rise in value of pound makes the exports of the country and investing into the country more expensive, thus discouraging the two.

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Appendix

Appendix A: Oil Prices

Back to Contents Data 1: Weekly Europe (UK) Brent Blend Spot Price FOB (Dollars per Barrel) WEPCBRENT Weekly Europe (UK) Brent Blend Spot Price FOB (Dollars per Barrel) 15.8 21 27.2 17.75 17.9 13.15 16.15 19.37 24.05 24.43 22.99 22.81 23.37 21.86 20.7 20.14 19.34

Sourcekey Date

Jan 06, 1989 Jan 05, 1990 Jan 04, 1991 Jan 03, 1992 Jan 01, 1993 Jan 07, 1994 Jan 06, 1995 Jan 05, 1996 Jan 03, 1997 Jan 10, 1997 Jan 17, 1997 Jan 24, 1997 Jan 31, 1997 Feb 07, 1997 Feb 14, 1997 Feb 21, 1997 Feb 28,

1997 Mar 07, 1997 Mar 14, 1997 Mar 21, 1997 Mar 28, 1997 Apr 04, 1997 Apr 11, 1997 Apr 18, 1997 Apr 25, 1997 May 02, 1997 May 09, 1997 May 16, 1997 May 23, 1997 May 30, 1997 Jun 06, 1997 Jun 13, 1997 Jun 20, 1997 Jun 27, 1997 Jul 04, 1997 Jul 11, 1997 Jul 18, 1997 Jul 25, 1997 Aug 01, 1997 Aug 08, 1997 Aug 15,

19.68 19.1 19.05 19.05 17.3 17.61 17.19 17.99 17.64 19.63 19.19 20.11 19.11 17.82 17.15 17.12 17.85 18.45 17.88 18.75 18.71 19.12 18.45 19.17

1997 Aug 22, 1997 Aug 29, 1997 Sep 05, 1997 Sep 12, 1997 Sep 19, 1997 Sep 26, 1997 Oct 03, 1997 Oct 10, 1997 Oct 17, 1997 Oct 24, 1997 Oct 31, 1997 Nov 07, 1997 Nov 14, 1997 Nov 21, 1997 Nov 28, 1997 Dec 05, 1997 Dec 12, 1997 Dec 19, 1997 Dec 26, 1997 Jan 02, 1998 Jan 09, 1998 Jan 16, 1998 Jan 23, 1998 Jan 30,

18.33 18.1 18.15 18.01 18.22 19.04 21.32 20.7 20.07 19.72 19.22 19.18 19.59 19.07 18.82 17.73 17.03 17.16 16.62 15.89 15.29 14.78 14.47 15.55

1998 Feb 06, 1998 Feb 13, 1998 Feb 20, 1998 Feb 27, 1998 Mar 06, 1998 Mar 13, 1998 Mar 20, 1998 Mar 27, 1998 Apr 03, 1998 Apr 10, 1998 Apr 17, 1998 Apr 24, 1998 May 01, 1998 May 08, 1998 May 15, 1998 May 22, 1998 May 29, 1998 Jun 05, 1998 Jun 12, 1998 Jun 19, 1998 Jun 26, 1998 Jul 03, 1998 Jul 10, 1998 Jul 17,

14.8 14.07 13.71 13.3 12.95 12.44 12.29 14.99 13.74 13.2 13.9 13.33 14.32 14.01 14.69 14.42 14.68 13.08 11.67 10.9 12.29 12.13 14 12.43

1998 Jul 24, 1998 Jul 31, 1998 Aug 07, 1998 Aug 14, 1998 Aug 21, 1998 Aug 28, 1998 Sep 04, 1998 Sep 11, 1998 Sep 18, 1998 Sep 25, 1998 Oct 02, 1998 Oct 09, 1998 Oct 16, 1998 Oct 23, 1998 Oct 30, 1998 Nov 06, 1998 Nov 13, 1998 Nov 20, 1998 Nov 27, 1998 Dec 04, 1998 Dec 11, 1998 Dec 18, 1998 Dec 25, 1998 Jan 01,

12.16 12.61 12.03 11.74 12.07 12.04 13.01 12.82 13.48 14.78 14.15 13.08 12.17 11.81 12.03 11.42 11.76 10.68 10.53 9.33 9.2 9.55 10.02 10.44

1999 Jan 08, 1999 Jan 15, 1999 Jan 22, 1999 Jan 29, 1999 Feb 05, 1999 Feb 12, 1999 Feb 19, 1999 Feb 26, 1999 Mar 05, 1999 Mar 12, 1999 Mar 19, 1999 Mar 26, 1999 Apr 02, 1999 Apr 09, 1999 Apr 16, 1999 Apr 23, 1999 Apr 30, 1999 May 07, 1999 May 14, 1999 May 21, 1999 May 28, 1999 Jun 04, 1999 Jun 11, 1999 Jun 18,

11.57 10.95 11.2 11.04 10.18 10.06 10.21 10.73 11.1 12.06 13.05 13.82 14.56 14.36 15.08 15.93 16.6 15.38 15.13 14.63 14.74 14.83 16.15 16.03

1999 Jun 25, 1999 Jul 02, 1999 Jul 09, 1999 Jul 16, 1999 Jul 23, 1999 Jul 30, 1999 Aug 06, 1999 Aug 13, 1999 Aug 20, 1999 Aug 27, 1999 Sep 03, 1999 Sep 10, 1999 Sep 17, 1999 Sep 24, 1999 Oct 01, 1999 Oct 08, 1999 Oct 15, 1999 Oct 22, 1999 Oct 29, 1999 Nov 05, 1999 Nov 12, 1999 Nov 19, 1999 Nov 26, 1999 Dec 03,

16.33 17.32 18.68 19.45 19.39 19.86 19.92 20.68 21.23 20.21 20.8 22.71 22.97 23.41 22.83 20.81 21.75 22.08 21.14 22.89 25.08 25.08 25.25 26

1999 Dec 10, 1999 Dec 24, 1999 Dec 31, 1999 Jan 07, 2000 Jan 14, 2000 Jan 21, 2000 Jan 28, 2000 Feb 04, 2000 Feb 11, 2000 Feb 18, 2000 Feb 25, 2000 Mar 03, 2000 Mar 10, 2000 Mar 17, 2000 Mar 24, 2000 Mar 31, 2000 Apr 07, 2000 Apr 14, 2000 Apr 21, 2000 Apr 28, 2000 May 05, 2000 May 12, 2000 May 19, 2000 May 26,

24.99 24.77 25.1 23.26 25.39 27.18 26.17 27.49 27.37 27.85 28.69 30.05 29.22 27.61 25.36 24.07 23.3 22.23 23.46 23.4 24.83 28.67 28.93 30.06

2000 Jun 02, 2000 Jun 09, 2000 Jun 16, 2000 Jun 23, 2000 Jun 30, 2000 Jul 07, 2000 Jul 14, 2000 Jul 21, 2000 Jul 28, 2000 Aug 04, 2000 Aug 11, 2000 Aug 18, 2000 Aug 25, 2000 Sep 08, 2000 Sep 15, 2000 Sep 22, 2000 Sep 29, 2000 Oct 06, 2000 Oct 13, 2000 Oct 20, 2000 Oct 27, 2000 Nov 03, 2000 Nov 10, 2000 Nov 17,

29.1 28.52 29.94 30.8 31.82 30.49 30.52 26.87 25.85 27.63 29.18 30.73 30.38 36.26 32.77 32.43 28.48 29.62 33.39 30.56 31.24 30.54 32.28 33.43

2000 Nov 24, 2000 Dec 01, 2000 Dec 08, 2000 Dec 15, 2000 Dec 22, 2000 Dec 29, 2000 Jan 05, 2001 Jan 12, 2001 Jan 19, 2001 Jan 26, 2001 Feb 02, 2001 Feb 09, 2001 Feb 16, 2001 Feb 23, 2001 Mar 02, 2001 Mar 09, 2001 Mar 16, 2001 Mar 23, 2001 Mar 30, 2001 Apr 06, 2001 Apr 13, 2001 Apr 20, 2001 Apr 27, 2001 May 04,

32.98 31.12 26.86 25.45 22.23 22.5 24.52 25.53 26.23 26.46 28.67 29.67 26.61 26.08 25.27 25.65 24.11 23.76 23.85 23.97 26.45 25.54 27.02 27.4

2001 May 11, 2001 May 18, 2001 May 25, 2001 Jun 01, 2001 Jun 08, 2001 Jun 15, 2001 Jun 22, 2001 Jun 29, 2001 Jul 06, 2001 Jul 13, 2001 Jul 20, 2001 Jul 27, 2001 Aug 03, 2001 Aug 10, 2001 Aug 17, 2001 Aug 24, 2001 Aug 31, 2001 Sep 07, 2001 Sep 14, 2001 Sep 21, 2001 Sep 28, 2001 Oct 05, 2001 Oct 12, 2001 Oct 19,

27.78 29.44 28.79 28.81 29.55 28.19 26.61 26.13 26.34 23.9 23.09 24.49 25.52 25.75 24.74 26.13 26.68 27.4 29.01 25 21.69 21.29 20.5 19.8

2001 Oct 26, 2001 Nov 02, 2001 Nov 09, 2001 Nov 16, 2001 Nov 23, 2001 Nov 30, 2001 Dec 07, 2001 Dec 14, 2001 Dec 21, 2001 Dec 28, 2001 Jan 04, 2002 Jan 11, 2002 Jan 18, 2002 Jan 25, 2002 Feb 01, 2002 Feb 08, 2002 Feb 15, 2002 Feb 22, 2002 Mar 01, 2002 Mar 08, 2002 Mar 15, 2002 Mar 22, 2002 Mar 29, 2002 Apr 05,

20.23 19.49 19.6 16.98 19.47 18.87 17.66 18.42 18.6 19.75 21.2 19.93 18.14 19.12 19.74 20.09 20.68 20.06 21.86 22.24 23.78 24.87 25.15 25.97

2002 Apr 12, 2002 Apr 19, 2002 Apr 26, 2002 May 03, 2002 May 10, 2002 May 17, 2002 May 24, 2002 May 31, 2002 Jun 07, 2002 Jun 14, 2002 Jun 21, 2002 Jun 28, 2002 Jul 05, 2002 Jul 12, 2002 Jul 19, 2002 Jul 26, 2002 Aug 02, 2002 Aug 09, 2002 Aug 16, 2002 Aug 23, 2002 Aug 30, 2002 Sep 06, 2002 Sep 13, 2002 Sep 20,

23.2 25.33 26.86 25.76 26.43 25.43 24.17 23.87 23.26 24.09 24.07 25.31 25.78 25.86 26.17 25.2 25.51 25.37 26.76 27.55 27.33 28.7 28.47 28.17

2002 Sep 27, 2002 Oct 04, 2002 Oct 11, 2002 Oct 18, 2002 Oct 25, 2002 Nov 01, 2002 Nov 08, 2002 Nov 15, 2002 Nov 22, 2002 Nov 29, 2002 Dec 06, 2002 Dec 13, 2002 Dec 20, 2002 Dec 27, 2002 Jan 03, 2003 Jan 10, 2003 Jan 17, 2003 Jan 24, 2003 Jan 31, 2003 Feb 07, 2003 Feb 14, 2003 Feb 21, 2003 Feb 28, 2003 Mar 07,

28.96 28.82 28.07 28.39 27.05 25.62 24.79 23.38 23.91 24.81 25.56 25.6 29.73 30.51 31.36 30.1 31.45 31.81 31.8 31.75 32.41 33.06 33.85 33.9

2003 Mar 14, 2003 Mar 21, 2003 Mar 28, 2003 Apr 04, 2003 Apr 11, 2003 Apr 18, 2003 Apr 25, 2003 May 02, 2003 May 09, 2003 May 16, 2003 May 23, 2003 May 30, 2003 Jun 06, 2003 Jun 13, 2003 Jun 20, 2003 Jun 27, 2003 Jul 04, 2003 Jul 11, 2003 Jul 18, 2003 Jul 25, 2003 Aug 01, 2003 Aug 08, 2003 Aug 15, 2003 Aug 22,

34.18 29.25 26.2 26.89 25.36 24.56 24.93 23.5 23.7 25.74 27.18 26.55 27.58 28.39 26.68 27.1 27.92 28.15 28.7 28.33 28.23 30.14 29.59 29.14

2003 Aug 29, 2003 Sep 05, 2003 Sep 12, 2003 Sep 19, 2003 Sep 26, 2003 Oct 03, 2003 Oct 10, 2003 Oct 17, 2003 Oct 24, 2003 Oct 31, 2003 Nov 07, 2003 Nov 14, 2003 Nov 21, 2003 Nov 28, 2003 Dec 05, 2003 Dec 12, 2003 Dec 19, 2003 Dec 26, 2003 Jan 02, 2004 Jan 09, 2004 Jan 16, 2004 Jan 23, 2004 Jan 30, 2004 Feb 06,

29.77 28.38 26.59 25.8 26.13 28.11 29.19 31.11 29.49 28.8 28.02 28.71 29.42 28.46 28.87 29.87 30.4 30.04 29.73 31.11 31.96 31.59 30.53 29.6

2004 Feb 13, 2004 Feb 20, 2004 Feb 27, 2004 Mar 05, 2004 Mar 12, 2004 Mar 19, 2004 Mar 26, 2004 Apr 02, 2004 Apr 09, 2004 Apr 16, 2004 Apr 23, 2004 Apr 30, 2004 May 07, 2004 May 14, 2004 May 21, 2004 May 28, 2004 Jun 04, 2004 Jun 11, 2004 Jun 18, 2004 Jun 25, 2004 Jul 02, 2004 Jul 09, 2004 Jul 16, 2004 Jul 23,

29.9 31.04 31.9 33.48 33.88 34.17 34.19 32.59 31.63 33.45 33.26 33.86 36.3 37.8 38.74 37.91 37.78 35.48 35.1 34.96 33.41 36.16 37.48 38.96

2004 Jul 30, 2004 Aug 06, 2004 Aug 13, 2004 Aug 20, 2004 Aug 27, 2004 Sep 03, 2004 Sep 10, 2004 Sep 17, 2004 Sep 24, 2004 Oct 01, 2004 Oct 08, 2004 Oct 15, 2004 Oct 22, 2004 Oct 29, 2004 Nov 05, 2004 Nov 12, 2004 Nov 19, 2004 Nov 26, 2004 Dec 03, 2004 Dec 10, 2004 Dec 17, 2004 Dec 24, 2004 Dec 31, 2004 Jan 07,

40.18 42.25 43.53 44.74 43 40.9 41.14 41.87 44.12 47.04 47.46 50.44 49.91 51.48 46.25 43.38 40.53 42.65 42.06 37.98 38.21 42.86 39.43 41.39

2005 Jan 14, 2005 Jan 21, 2005 Jan 28, 2005 Feb 04, 2005 Feb 11, 2005 Feb 18, 2005 Feb 25, 2005 Mar 04, 2005 Mar 11, 2005 Mar 18, 2005 Mar 25, 2005 Apr 01, 2005 Apr 08, 2005 Apr 15, 2005 Apr 22, 2005 Apr 29, 2005 May 06, 2005 May 13, 2005 May 20, 2005 May 27, 2005 Jun 03, 2005 Jun 10, 2005 Jun 17, 2005 Jun 24,

43.84 44.92 46.09 44.28 43.39 44.77 47.45 50.74 52.89 53.95 54.81 52.15 54.43 51.44 51.42 51.88 49.86 49.1 47.25 47.95 51.21 53.26 53.57 56.73

2005 Jul 01, 2005 Jul 08, 2005 Jul 15, 2005 Jul 22, 2005 Jul 29, 2005 Aug 05, 2005 Aug 12, 2005 Aug 19, 2005 Aug 26, 2005 Sep 02, 2005 Sep 09, 2005 Sep 16, 2005 Sep 23, 2005 Sep 30, 2005 Oct 07, 2005 Oct 14, 2005 Oct 21, 2005 Oct 28, 2005 Nov 04, 2005 Nov 11, 2005 Nov 18, 2005 Nov 25, 2005 Dec 02, 2005 Dec 09,

56.81 57.73 57.63 56.56 57.39 59.97 62.41 65.84 64.57 66.34 65.82 62.15 62.36 62.47 60.66 58.57 57.99 58.3 58.76 57.71 53.99 53.57 53.23 55.99

2005 Dec 16, 2005 Dec 23, 2005 Dec 30, 2005 Jan 06, 2006 Jan 13, 2006 Jan 20, 2006 Jan 27, 2006 Feb 03, 2006 Feb 10, 2006 Feb 17, 2006 Feb 24, 2006 Mar 03, 2006 Mar 10, 2006 Mar 17, 2006 Mar 24, 2006 Mar 31, 2006 Apr 07, 2006 Apr 14, 2006 Apr 21, 2006 Apr 28, 2006 May 05, 2006 May 12, 2006 May 19, 2006 May 26,

58.47 56.82 57.25 60.93 62.42 63.09 63.99 64.73 61.84 58.41 58.5 60.39 60.73 61.39 61.71 64.16 66.82 68.28 72.1 73.07 72.96 70.47 68.86 67.96

2006 Jun 02, 2006 Jun 09, 2006 Jun 16, 2006 Jun 23, 2006 Jun 30, 2006 Jul 07, 2006 Jul 14, 2006 Jul 21, 2006 Jul 28, 2006 Aug 04, 2006 Aug 11, 2006 Aug 18, 2006 Aug 25, 2006 Sep 01, 2006 Sep 08, 2006 Sep 15, 2006 Sep 22, 2006 Sep 29, 2006 Oct 06, 2006 Oct 13, 2006 Oct 20, 2006 Oct 27, 2006 Nov 03, 2006 Nov 10,

69.43 68.06 66.83 67.24 71.1 73.26 73.78 74.24 73.39 75.78 77.33 73.37 71.51 68.09 65.64 62.97 60.49 58.72 57.89 57.79 57.67 57.66 57.74 59.33

2006 Nov 17, 2006 Nov 24, 2006 Dec 01, 2006 Dec 08, 2006 Dec 15, 2006 Dec 22, 2006 Dec 29, 2006 Jan 05, 2007 Jan 12, 2007 Jan 19, 2007 Jan 26, 2007 Feb 02, 2007 Feb 09, 2007 Feb 16, 2007 Feb 23, 2007 Mar 02, 2007 Mar 09, 2007 Mar 16, 2007 Mar 23, 2007 Mar 30, 2007 Apr 06, 2007 Apr 13, 2007 Apr 20, 2007 Apr 27,

58.46 58.42 61.83 64.37 62.34 62.44 60.5 56.66 51.82 50.98 53.8 55.7 57.45 55.85 57.2 60.87 60.74 60.69 60.85 64.98 68.57 67.85 66.78 67.13

2007 May 04, 2007 May 11, 2007 May 18, 2007 May 25, 2007 Jun 01, 2007 Jun 08, 2007 Jun 15, 2007 Jun 22, 2007 Jun 29, 2007 Jul 06, 2007 Jul 13, 2007 Jul 20, 2007 Jul 27, 2007 Aug 03, 2007 Aug 10, 2007 Aug 17, 2007 Aug 24, 2007 Aug 31, 2007 Sep 07, 2007 Sep 14, 2007 Sep 21, 2007 Sep 28, 2007 Oct 05, 2007 Oct 12,

66.92 66.92 66.92 70.32 68.91 70.7 69.57 72.05 71.69 72.75 76.9 78.35 77.22 76.53 71.87 69.79 68.54 70.22 74.27 76.14 77.46 77.96 78.07 78.66

2007 Oct 19, 2007 Oct 26, 2007 Nov 02, 2007 Nov 09, 2007 Nov 16, 2007 Nov 23, 2007 Nov 30, 2007 Dec 07, 2007 Dec 14, 2007 Dec 21, 2007 Dec 28, 2007 Jan 04, 2008 Jan 11, 2008 Jan 18, 2008 Jan 25, 2008 Feb 01, 2008 Feb 08, 2008 Feb 15, 2008 Feb 22, 2008 Feb 29, 2008 Mar 07, 2008 Mar 14, 2008 Mar 21, 2008 Mar 28,

83.61 84.14 89.4 93.52 90.77 94.7 94.79 90.63 91.43 92.49 93.25 98.42 97.82 91.96 89.68 93.15 91.52 95.41 98.83 99.69 102.3 107.94 106.21 103.99

2008 Apr 04, 2008 Apr 11, 2008 Apr 18, 2008 Apr 25, 2008 May 02, 2008 May 09, 2008 May 16, 2008 May 23, 2008 May 30, 2008 Jun 06, 2008 Jun 13, 2008 Jun 20, 2008 Jun 27, 2008 Jul 04, 2008 Jul 11, 2008 Jul 18, 2008 Jul 25, 2008 Aug 01, 2008 Aug 08, 2008 Aug 15, 2008 Aug 22, 2008 Aug 29, 2008 Sep 05, 2008 Sep 12,

101.35 107 111.44 114.64 113.52 118.77 123.45 126.33 130.13 125.47 134.87 133.85 135.98 142.45 137.81 139.34 129.16 125.29 120.15 114.01 110.1 115.11 108.46 101.61

2008 Sep 19, 2008 Sep 26, 2008 Oct 03, 2008 Oct 10, 2008 Oct 17, 2008 Oct 24, 2008 Oct 31, 2008 Nov 07, 2008 Nov 14, 2008 Nov 21, 2008 Nov 28, 2008 Dec 05, 2008 Dec 12, 2008 Dec 19, 2008 Dec 26, 2008 Jan 02, 2009 Jan 09, 2009 Jan 16, 2009 Jan 23, 2009 Jan 30, 2009 Feb 06, 2009 Feb 13, 2009 Feb 20, 2009 Feb 27,

92.89 101.41 96.2 83.8 71.95 65.54 60.71 60.45 53.32 49.15 48.96 45.15 41.17 42.68 36.31 34.33 44.52 42.37 44.01 43.8 43.63 45.17 42.29 41.97

2009 Mar 06, 2009 Mar 13, 2009 Mar 20, 2009 Mar 27, 2009 Apr 03, 2009 Apr 10, 2009 Apr 17, 2009 Apr 24, 2009 May 01, 2009 May 08, 2009 May 15, 2009 May 22, 2009 May 29, 2009 Jun 05, 2009 Jun 12, 2009 Jun 19, 2009 Jun 26, 2009 Jul 03, 2009 Jul 10, 2009 Jul 17, 2009 Jul 24, 2009 Jul 31, 2009 Aug 07, 2009 Aug 14,

44.16 44.04 45.8 51.19 48.58 51.4 51.7 49.16 49.78 53.89 56.5 57.63 60.59 66.55 69.41 69.7 68.52 67.96 61.58 60.25 65.67 68.59 72.89 73.14

2009 Aug 21, 2009 Aug 28, 2009 Sep 04, 2009 Sep 11, 2009 Sep 18, 2009 Sep 25, 2009 Oct 02, 2009 Oct 09, 2009 Oct 16, 2009 Oct 23, 2009 Oct 30, 2009 Nov 06, 2009 Nov 13, 2009 Nov 20, 2009 Nov 27, 2009 Dec 04, 2009 Dec 11, 2009 Dec 18, 2009 Dec 25, 2009

71.42 72.22 68.94 68.56 68.22 67.28 65.45 67.29 71.47 76.76 76.8 76.53 76.6 77 76.47 77.24 74.7 71.48 72.91

Source: http://www.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx? n=PET&s=WEPCBRENT&f=W

Appendix B: Steel Prices

Dataset ppi Name: Title: Producer prices: Index numbers of input and output prices (SIC07) Descrip Index number of input and output prices, 2005=100 (SIC07) tion: Source: Office for National Statistics Substitution Details: Value Meaning .. not available ==================================== Series Characteristics: Series Type of price Industry Seasonali Identifi ty er K646 Input prices All manufacturing inc CCL not seasonally (materials and adjusted fuel) K655 Input prices Manufacturing excluding food, not seasonally (materials and beverages, tobacco and adjusted fuel) petroleum, inc CCL K658 Input prices Manufacturing excluding food, Seasonally (materials and beverages, tobacco and adjusted fuel) petroleum, inc CCL JVZ7 Output prices All manufacturing not seasonally (home sales) adjusted K3BI Output prices Manufacturing excluding food not seasonally (home sales) adjusted JVZ8 Output prices All manufacturing not seasonally excluding adjusted excise duty ==================================== Table K646 K655 K65 JVZ K3B 8 7 I 1996 103.2 110.3 110 94. 102 .3 1 .3 1997 94.7 103.3 103 95 102 .3 .6 1998 86.1 98.5 98. 95 101 5 .7 1999 85 95 95 95. 100 6 .7 2000 91.3 98.5 98. 96. 100

JVZ 8 97. 7 97. 8 96. 9 96. 6 97.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1996 01 1996 02 1996 03 1996 04 1996 05 1996 06 1996 07 1996 08 1996 09 1996 10 1996 11 1996 12 1997 01 1997 02

90.2 86.2 87.2 90.1 100 109.8 113 138.1 132.9 146.1 106.2 105.4 105.6 106.1 104.5 103.4 101.4 100.8 101.3 101.8 100.4 101.3 100.6 98.7

97.3 92.6 92 93.5 100 107.2 109.8 128.4 130.5 138 115.8 114.8 112.8 111.8 110.9 109.7 108.2 108.2 107.7 107.9 107.9 108.5 107.7 106.1

5 97. 3 92. 6 92 93. 5 100 107 .3 109 .8 128 .4 130 .5 137 .9 114 .3 113 .8 112 .8 112 .3 111 .3 110 .5 109 .4 108 .8 108 .3 108 .1 107 .3 107 .2 106 .3 105 .3

9 96. 6 96. 5 97. 1 98. 1 100 102 104 .4 111 .4 113 .2 117 .9 93. 5 93. 6 93. 8 94. 2 94. 1 93. 9 93. 8 94 94. 3 94. 4 94. 4 94. 7 94. 9 94. 7

.2 99. 6 99. 2 99. 3 99 100 101 .5 102 .9 106 .7 109 .4 112 .7 102 .1 102 .2 102 .5 102 .6 102 .6 102 .5 102 .3 102 .3 102 .3 102 .2 102 .3 102 .3 102 .5 102 .5

4 97. 1 97 97. 5 98. 1 100 102 104 .1 111 .1 112 .2 116 .6 97. 1 97. 2 97. 5 97. 9 97. 9 97. 7 97. 5 97. 6 97. 9 97. 9 97. 9 97. 8 98 97. 7

1997 03 1997 04 1997 05 1997 06 1997 07 1997 08 1997 09 1997 10 1997 11 1997 12 1998 01 1998 02 1998 03 1998 04 1998 05 1998 06 1998 07 1998 08 1998 09 1998 10 1998 11 1998 12 1999 01 1999 02

96.8 94.1 95 94.2 93.1 93.5 93.1 92.9 92 92.1 90.6 89.5 87.7 86.4 87.3 85.6 85 84.9 84.5 84.1 84.1 83.7 84 83.2

104.9 103.2 103.1 102.3 101.7 101.9 101.4 101.8 102.2 103.7 103 102.2 100.5 99.1 99.6 98.1 97 97 96.6 96.3 96.6 96.3 96 95.2

104 .9 103 .6 103 .5 103 102 .8 102 .4 101 .9 102 101 .7 102 .5 101 .9 101 .4 100 .5 99. 4 99. 9 98. 7 98 97. 5 97. 1 96. 5 96. 1 95. 4 95. 1 94. 6

94. 6 94. 7 94. 8 94. 7 95 95. 1 95. 3 95. 3 95. 2 95. 3 95. 3 94. 9 95. 1 95. 2 95. 2 95. 1 95. 1 95 94. 9 94. 9 94. 7 94. 7 94. 7 94. 8

102 .7 102 .7 102 .6 102 .5 102 .6 102 .6 102 .6 102 .7 102 .7 102 .7 102 .8 102 .2 102 .1 102 101 .9 101 .6 101 .5 101 .5 101 .4 101 .4 101 .2 101 .1 101 .2 101 .2

97. 7 97. 8 97. 9 97. 8 97. 7 97. 8 97. 9 97. 9 97. 8 97. 8 97. 7 97. 2 97. 1 97 97 96. 9 96. 8 96. 7 96. 6 96. 6 96. 4 96. 2 96. 1 96. 2

1999 03 1999 04 1999 05 1999 06 1999 07 1999 08 1999 09 1999 10 1999 11 1999 12 2000 01 2000 02 2000 03 2000 04 2000 05 2000 06 2000 07 2000 08 2000 09 2000 10 2000 11 2000 12 2001 01 2001 02

83.3 83.9 83.5 83.9 85.8 85.5 85.8 85.4 87.6 88.5 88.2 89.6 89.3 86.8 89.8 91.6 91.1 92.4 94.8 94 95.6 92.6 92.4 93.5

94.7 94.4 93.9 93.9 94.7 94.6 94.6 94.6 96.1 96.9 96.7 97.4 96.9 96.2 97.4 98.1 98.1 99 100.5 100.2 101.2 100.7 100.5 100.7

94. 6 94. 7 94. 2 94. 3 95. 5 95 95 94. 9 95. 6 96. 1 96. 1 96. 8 96. 7 96. 3 97. 7 98. 4 98. 8 99. 4 101 100 .6 100 .7 100 .1 100 100 .1

95. 3 95. 7 95. 7 95. 7 95. 6 95. 7 95. 8 95. 9 95. 8 95. 9 95. 9 96 96. 4 96. 9 96. 9 97. 3 97. 4 97 97. 3 97. 5 97. 4 97. 1 96. 8 96. 5

101 .1 101 100 .9 100 .8 100 .4 100 .3 100 .4 100 .5 100 .5 100 .4 100 .4 100 .4 100 .5 100 .5 100 .3 100 .4 100 .3 100 .2 100 .2 100 .1 99. 9 99. 8 99. 9 99. 7

96. 3 96. 6 96. 6 96. 5 96. 6 96. 6 96. 8 96. 9 96. 7 96. 9 96. 9 97 97. 3 97. 3 97. 3 97. 7 97. 8 97. 3 97. 6 97. 8 97. 7 97. 4 97. 1 96. 7

2001 03 2001 04 2001 05 2001 06 2001 07 2001 08 2001 09 2001 10 2001 11 2001 12 2002 01 2002 02 2002 03 2002 04 2002 05 2002 06 2002 07 2002 08 2002 09 2002 10 2002 11 2002 12 2003 01 2003 02

91.5 92.2 93.3 93.1 90.5 89.5 88.6 86.1 86 85.6 86 86 87.1 87.2 86.6 86.2 85.7 86.2 86.2 85.9 84.6 86.7 87.5 88.3

99.6 99.6 99.1 98.7 97.1 95.6 94.8 94.1 94.1 93.8 93.8 93.7 93.7 93.3 92.9 92.9 92.1 92.1 91.6 91.5 91.6 92.3 91.7 92.3

99. 3 99. 6 99. 3 99 97. 7 96 95. 2 94. 4 93. 8 93. 2 93. 5 93. 3 93. 3 93. 2 93. 1 93. 2 92. 5 92. 5 92. 1 91. 8 91. 3 91. 7 91. 5 92

96. 6 96. 8 97. 1 97 96. 8 96. 7 96. 7 96. 5 95. 9 95. 9 96 96 96. 1 96. 5 96. 7 96. 6 96. 6 96. 6 96. 7 96. 8 96. 7 96. 7 97 97

99. 8 99. 8 99. 8 99. 7 99. 6 99. 5 99. 4 99. 4 99. 3 99. 2 99. 2 99 99 99. 1 99. 2 99. 2 99. 3 99. 3 99. 3 99. 3 99. 3 99. 4 99. 5 99. 4

97 97. 3 97. 7 97. 7 97. 4 97. 3 97. 3 97. 1 96. 5 96. 3 96. 5 96. 4 96. 6 97 97. 2 97. 1 97 97 97. 2 97. 3 97. 1 97. 2 97. 5 97. 5

2003 03 2003 04 2003 05 2003 06 2003 07 2003 08 2003 09 2003 10 2003 11 2003 12 2004 01 2004 02 2004 03 2004 04 2004 05 2004 06 2004 07 2004 08 2004 09 2004 10 2004 11 2004 12 2005 01 2005 02

88.4 85.9 85.4 85.8 86.5 88.1 86.8 87.6 88 88.1 87.1 86.5 88.6 88.5 90.5 88.8 89.5 91.6 92.6 94.8 92.6 90.6 93.8 94.3

93 92.1 91.7 91.2 91.4 92 91.7 92.1 92.5 92.5 91.7 91.2 92.5 92.6 93.4 92.6 92.8 93.8 94.7 96.1 95.9 95.1 96.6 96.8

92. 5 92 91. 9 91. 5 91. 7 92. 3 92. 3 92. 5 92. 2 91. 8 91. 4 91 91. 9 92. 4 93. 7 93 92. 9 94. 1 95. 4 96. 6 95. 5 94. 4 96. 2 96. 7

97. 5 97. 3 97 97 97 97. 1 97 97. 1 97. 2 97. 2 97. 2 97. 2 97. 3 97. 6 98. 1 98. 1 98. 2 98. 2 98. 6 98. 9 98. 9 98. 7 98. 5 98. 7

99. 4 99. 4 99. 3 99. 2 99. 2 99. 2 99. 2 99. 1 99. 1 99. 1 99 98. 8 98. 7 98. 7 98. 8 98. 9 99 99. 1 99. 3 99. 4 99. 4 99. 5 99. 6 99. 6

98 97. 7 97. 4 97. 3 97. 3 97. 4 97. 4 97. 3 97. 4 97. 4 97. 4 97. 3 97. 4 97. 6 98. 1 98. 1 98. 2 98. 3 98. 6 98. 9 99 98. 8 98. 6 98. 8

2005 03 2005 04 2005 05 2005 06 2005 07 2005 08 2005 09 2005 10 2005 11 2005 12 2006 01 2006 02 2006 03 2006 04 2006 05 2006 06 2006 07 2006 08 2006 09 2006 10 2006 11 2006 12 2007 01 2007 02

96.7 96.2 96 98.6 102 103.3 102.1 103 106 108 109.7 109.3 110 111.9 109.7 109.8 112.6 111.7 107.7 107 108.4 109.4 105.7 106.9

97.7 97.5 97.6 98.4 100.5 100.6 100.3 102 105.1 107 107.4 107.3 107.3 107.7 106.4 106.4 107.9 107.2 105.9 106.8 108.2 108.4 106.9 107.2

97 97. 3 97. 8 98. 8 100 .5 101 101 .2 102 .6 104 .7 106 .2 106 .9 107 .2 106 .5 107 .5 106 .6 106 .8 107 .9 107 .8 106 .9 107 .4 107 .8 107 .8 106 .3 107 .1

99. 2 99. 8 99. 7 99. 8 100 .4 100 .5 100 .9 101 100 .8 100 .7 101 .1 101 .1 101 .4 101 .9 102 .3 102 .4 102 .7 102 .8 102 .4 102 102 102 .2 102 .4 102 .6

99. 8 99. 8 99. 8 99. 8 100 .1 100 .1 100 .1 100 .3 100 .4 100 .6 101 101 101 .3 101 .4 101 .4 101 .5 101 .6 101 .7 101 .8 101 .9 101 .9 101 .9 102 .2 102 .5

99. 3 99. 8 99. 6 99. 7 100 .3 100 .4 100 .8 101 100 .8 100 .8 101 .2 101 .2 101 .5 101 .9 102 .2 102 .4 102 .6 102 .7 102 .4 102 102 102 102 .2 102 .5

2007 03 2007 04 2007 05 2007 06 2007 07 2007 08 2007 09 2007 10 2007 11 2007 12 2008 01 2008 02 2008 03 2008 04 2008 05 2008 06 2008 07 2008 08 2008 09 2008 10 2008 11 2008 12 2009 01 2009 02

109.4 109.8 110.2 111.6 112.9 111.5 114.3 117.5 121.8 124.2 127.7 130 133.5 138.3 144.2 150.5 149.2 144.7 142 136 132.1 128.8 130.1 130.6

108.4 107.6 108.2 108.7 108.7 108.5 110.1 112 114.4 116.4 118.9 120.7 123.3 126 129.2 132.3 132.7 131.6 131.6 130.9 131.3 131.8 132.5 131.4

107 .5 107 .5 108 .3 109 .1 108 .7 109 .2 111 .1 112 .7 114 .2 115 .9 118 .4 120 .6 122 125 .9 129 132 .6 132 .7 132 .6 132 .8 131 .6 131 .3 131 .4 131 .9 131 .3

103 .2 103 .5 103 .9 104 .2 104 .4 104 .5 104 .8 105 .6 106 .4 106 .9 107 .8 108 .2 109 .3 110 .4 111 .9 112 .9 113 .6 113 .4 113 .5 112 .6 111 .8 111 .6 111 .6 111 .6

102 .8 102 .7 102 .8 102 .8 102 .9 103 .1 103 .1 103 .3 103 .4 103 .6 104 .5 104 .6 105 .1 105 .4 105 .9 106 .4 107 .2 107 .6 108 .2 108 .3 108 .6 108 .5 108 .8 108 .8

103 .1 103 .3 103 .6 103 .9 104 .2 104 .3 104 .7 105 .2 106 .1 106 .5 107 .6 107 .9 109 109 .8 111 .5 112 .6 113 .4 113 .2 113 .5 112 .5 111 .7 110 .9 110 .9 110 .9

2009 03 2009 04 2009 05 2009 06 2009 07 2009 08 2009 09 2009 10 2009 11 2009 12

132.6 130 130.9 131.5 130.5 133.3 133.4 137.1 137.3 137.9

132.3 129.2 129 127.7 127.7 128.8 130.3 132.4 132.1 132.8

130 .8 129 .1 128 .5 128 127 .8 129 .9 131 .4 133 132 .1 132 .5

111 .7 112 .4 112 .7 113 .1 113 .3 113 .4 113 .9 114 .3 114 .7 115 .2

108 .9 109 .1 109 .1 108 .9 109 .1 109 .2 109 .6 110 .1 110 .2 110 .8

111 .1 111 .5 111 .7 112 .1 112 .2 112 .4 112 .7 113 .1 113 .6 114 .1