Introduction
The paper is based on a macro-economic evaluation of the United Kingdom. The UK is known for its diversity and versatility in respect to the economy. A macroeconomy is defined as the relationship between income earned and the investment of a country. Aspects like tourism, fishing, trade, education, agriculture, construction, manufacturing and the air space industry have a profound effect on the economy and tend to dictate the economic regime of a particular economy. I will be focusing on these subsectors and their contributions to macroeconomic growth. Recent studies have indicated that the UK is experiencing imbalances in the macroeconomy.
This fact is contentious because certain interests have been overlooked when doing macro-economic analyses of the economy of the UK. Imbalances have been brought out clearly in this study like cases of household debt and complications in the housing market. The UK economic case is an interesting one to focus on and study despite its challenges. The economy of the UK has always been ranked highly by economic experts all over the world due to its steady growth and stability.
Objectives
General objective
To study the macroeconomy of the UK.
Specific objectives
- To identify the various variables that dictate the economy of the UK from 1980 to 2012.
- To understand the history of the UK economy.
- To analyze the macroeconomic variables underlining the consistency of the UK economy in respect to GDP, trade flows and unemployment.
- To evaluate the macroeconomy of the UK.
- To establish effective policies recommended for an effective macroeconomy.
Background
In the economic sector of a nation, prices are determined by micro and macro-economic factors. Microeconomic factors that have existed since 1980 in the UK include inflation, unemployment, mortgage rates, gross domestic product, gross national product and national income. Macro-economic variables include housing, economic aspects, market liberalization, credit availability, and financial markets.
The UK has experienced economic sustainability from 2000 to date with a focus on housing finance. The sustainability has been realized due to rapid growth of the gross domestic product (GDP), improvement in foreign funding, investment boost and regulation of mortgage rates among others. However, after the global economic recession and financial meltdown, the UK economy has declined immensely from the year 2008 affecting both the locals and foreigners. In the year 2008, a national statistical agency pronounced the UK to be in permanent recession with economic indicators showing a total drop of about 2.5%.
This drop was registered as the worst drop in the economic growth rate of the UK since1982.Redundancy has been an obstacle to the UK economy with levels increasing in 2008. According to the national statistics agency, the recession was prompted by poor oil prices, discredit of financial facilities, poor monetary lending systems and a low performing treasury. The UK economy is considered as sixth in size worldwide concerning the GDP; seventh concerning purchasing power parity (PPP) and second in Europe based on both GDP and PPP. London, the capital city of the UK is considered the largest financial centre of Europe. By the end of the year 2010, the UK was confirmed the 3rd largest in stock market investment after France and USA.
Macroeconomic variables
Housing prices
When the economy of the UK was improved by the economic “boom”, many theories and research groups deliberated that the UK economy’s house prices would significantly rise. Issues of self-satisfaction involving egocentric homeowners who took advantage of the challenge raised concerns. Prices in the housing market rose and many investors were denied investment opportunities. It was shocking that the state of the economy did not take the predicted shape, and this was a challenge to the theories and their analysts. Glowing tribute has been paid to financial innovators who have contributed to the global distribution of money and who have also managed to bring a balance of market prices. Thanks to money innovations, liquidity has been improved. International diversification has revolutionized the way economies are run today. Investors have been able to venture into what is considered risky investments and have managed to achieve economic satisfaction.
The downfall of an economy can have severe impacts on any particular nation. The first and second world wars brought about unprecedented economic challenges on the economy of the UK in terms of inflation decreased value of the pound and the eventual decline of the British Empire. Having been challenged by this misfortune, the UK has been overtaken by the USA in economic dominance. The UK still maintains supremacy in the financial industry with the pound performing better in financial exchange as compared to the dollar or the euro.
Gross domestic product
GDP is defined as the money attached to the value of both goods and services produced by a certain economy in a particular period. GDP helps a nation in assessing its productivity and setting economic standards to sell its bargains. It is determined by calculating the annual production of both goods and services. It is achieved as below; GDP= private consumption + public spending +stock change + exports – imports.
On market rates, GDP is calculated by reduction of taxes and addition of profits and cost waivers. Based on GDP, the UK is ranked 6th in the world and placed 2nd in Europe. London is considered the largest city in Europe based on GDP. Research shows that the pharmaceutical industry has been able to employ over 60,000 people in the UK. This fact was an effective contribution to the macroeconomy of the UK. It is predicted that a trend similar to the mentioned one is likely to be observed in the next 5 or 10 years to come if better systems are put in place. Given an increase in GDP by 10% over 5 years, the following table suggests a possible rise in GDP with an increase in the number of employed individuals.
The following graph exhibits the possible trend of the United Kingdom’s economy.
Trade
The UK is endowed with valuable and numerous natural resources. The resources include lead, coal, natural gas, petroleum, iron core and land. All these provisions of nature enhanced by high technological networks make the UK which comprises England, Scotland and North Ireland have an economic advantage over other countries in Europe. The UK’s trade is enhanced by the industrial sector which contributes a big share in the trade market. Other industries include tourism, trade, fishing, finance, agriculture and education.
Agricultural sector
Agriculture in the UK has been able to attain good standards as rated by the European Union. The standards of agriculture in the UK are said to be above average and highly mechanized. The industry contributes about 60% of the food needed in the UK with labor utility falling below 1.6%. Agriculture is believed to contribute about 0.6% of value-added with 2/3 of all production inclining towards livestock production and rearing and 1/3 going to arable farming. This fact is an advantage to the economy as envisaged by the agriculture policy of the European Union.
Fishing
Though reduced in size, the fishing industry plays a significant macroeconomic role. It is pronounced in the towns of Grimsby, Kingston upon Hull, Fleetwood, Potter head and Lowe Soft with sole and herring types more common (Armstrong,1958).
Manufacturing
In 2009, the manufacturing industry generated about 140 million pounds and employed close to 2.6 million individuals. The industry is a great contributor to innovation, for instance, the Rolls Royce Trent 900 aircraft engine which is one of the most magnificent inventions ever created by man. The air space still under the manufacturing industry is the second largest in the world based on the measurement criteria. The industry creates over 300,000 jobs with an annual turnover of 20 billion pounds. The UK houses GlaxoSmithKline and AstraZeneca corporations which are among the world’s leading producers of pharmaceutical products.
Mining and quarrying
The Blue Book’s records (2006) show that the mining industry contributed a gross value amounting to 21.876 million pounds to the UK economy in 2004. The book states that in 2007, the UK had an energy expenditure of 9.5 quadrillions. The UK produced 1.5 million barrels of oil in 2009. In 2009, the UK was rated as the third-largest producer of natural gas. However, the production of gas has plummeted in the recent past and the UK is currently importing gas.
Education and health
The Queen Elizabeth Hospital situated in Birmingham shows that the UK has a concrete health macroeconomic structure. In 2008, it was indicated that the education, social and pharmaceutical industries contributed to a gross value of 93.7 billion pounds. The health sector is state-funded and operated by the National Health Service (NHS) which shares 80% of health care expenditure with a workforce of about 1.7 million. This qualifies it as the leading employer in Europe and the world as well.
Finance and business
This service sector added a total unit of 86.145 million pounds as gross value to the macroeconomy of the UK. This fact resulted in a macro investment and brought good returns to the economy in the financial year of 2004. It also improved the economic sector by bringing about a balance of payments across all sectors of the economy of the UK. London is a global commercial city with over 500 offices and banks and is reputed by experts to be the leading town in Europe in banking and insurance, foreign exchange, energy and trade.
Tourism
It is estimated that over 27 million tourists visited the UK in 2004. The United Kingdom is ranked 6th in the world in tourism with London being the most visited city. It hosted 15.6 million tourists in 2006 ahead of Bangkok and Paris (Haney & Perry, 2004). Tourism creates jobs for the people of the UK creating investment and raising the government revenue (Howard, 2001). Other extensive industries like commerce, trade and industrialization brand the UK as the most convenient tourist destination.
Transport and communication
The Heathrow terminal is highly recognized due to its economic importance and outstanding services; well-controlled traffic system and effective management of air operations. The Blue Book recorded a total of 49,516 million pounds which were consumed by storage and transport industries with the communication industry taking 29,762 million pounds. The road system in the UK is efficient and worthily built for safety reasons with few reported incidences of accidents or poor road usage.
The road system shares an interesting amount in terms of investment with the main road occupying 46, 0904 kilometers, the motorway taking 3,497 kilometers and the paved roads covering 213,750 kilometers. Railway lines constructed also ensure that transport is not only fast but also safe with the electric trains being the preferred alternatives for many people in the UK. Companies like Network Rail have been credited for their effectiveness in providing good railway channels.
Unemployment rates
Unemployment is believed to be a condition brought about by the availability of willing individuals to work but with an absence of potential opportunities. In certain cases, people may find themselves in the wrong professions forced by circumstances or lack of an effective alternative. Cases of unemployment have been a challenge in the UK from 1982 to date with no significant change in the standards of living of a majority of its citizens.
The youths are the most challenged by unemployment conditions with many resorting to violence and crime. Cases of hard drugs have been reported but attributed to unemployment. Crime and violence impact negatively the economy of the UK as evidenced by the youth riots in the country in 2011.They do not contribute positively to the economy but act as setbacks bringing reduced growth in the macroeconomy. Crime is a deterrent to investors and tourism thus leading to the withdrawal of potential economic pillars of any economy like investments.
Recommendation
I would like to recommend the government of the UK and all stakeholders both in the formal and informal sectors to appreciate the various variables of macroeconomics and implement policies that safeguard changes in house prices (Howard, 2001). It is also important for the government to create awareness through educational programs both in the local and international arena.
I also urge the government and corporate bodies to create more jobs for the youths in the formal and informal sectors. It is also important that the government protects the existing physical and natural resources through the establishment of policies that necessitate better use of the resources. All these developments can be achieved if there is good leadership in place. Leaders need to be action minded. With an effective disposition of power, the UK will always be an economic “giant” in the world.
The state should also set up major economic bodies that advise both the government and private sectors on the adoption of appropriate economic trends that will impact positively on the growth of macro and microeconomic sectors. The state should also finance economic research institutions to enhance the accurate and effective creation of new knowledge in the business sectors. The curriculum in business and economics’ schools should also be redrafted to integrate new trends in the economic domains. The state should embark on the creation of mechanisms to reduce economic crimes and other social ills that may have negative effects on the economy. Practices like corruption reduce the economic potential of the United Kingdom.
References
Haney, D., & Perry, W. (2004). International Business: Introduction and Essentials. London, UK: Longman Press.
Howard, B. (2001). The USA Patriot Act of 2001, Balancing Civil Liberties And National Security. New York, USA: ABC Clio Publishers.
Armstrong, J. (1958). The London Assurance Company and the Marine Insurance Market of the Eighteenth Century. London, UK: Lengthen Press.