UK Economy Economic Crisis

Question: Describe about the Esay for UK Economy for Economic Crisis? Answer: Introduction Economic crisis is a situation in the economy of a country that faces sudden downturn bringing down a financial crisis. A downturn in the economy implies a situation in which the value of assets or financial institutions falls rapidly. The global financial crisis was 2007-2008 but it has not ended yet (Navarro 2012). The global economy was slowed down with losses in billions and there is a debt crisis in the current European sovereign. An economic crisis takes the form of recession or depression. A few indicators of economic crisis are falling or rising prices due to deflation or inflation, a falling Gross Domestic Product (GDP) and drying up of liquidity (Obstfeld 2012). According to Jones (2016), UK, the richest fifth of the population are worse than they were before the financial crash in the year 2007 in terms of disposable income. Also, the poorest fifth have become better leading to a controversy among anti-austerity campaigners. The results reflect that UK is a more unequal country when measured by housing, pension and shares than measured by income. The reports from the Institute of Fiscal studies also suggest that 9% of the households in Britain have no assets. Further, 5% are worth in excess of 1.2m (Elliott 2015). The current scenario of Britisk econmy reveals that the economy has grown in every quarter since the start of 2013 by 0.5%. According to the economists, Britain is not experiencing bad deflation currently. The falling prices have boosted the consumer spending power. The income of people is rising. The overall effect of economic crisis on the exchange rates is negative (Walker 2015). The aim of this diary is to reflect upon various aspects and impacts of economic crisis on the UK economy. Economic crisis has exacerbated differentiated impact across the globe. The common impacts of the economic crisis are reported as increase in unemployment, negative effects on balance of payments, growing budget deficits, reduction of fiscal space and tax revenues, reduced revenue from tourism, foreign exchange rate fluctuations, collapsing housing markets and various others (Obstfeld 2012). This diary attempts to determine the impact of economic crisis on unemployment, UK housing markets, exchange rate fluctuations and property prices. A critical discussion is presented on the above factors or effects that are caused due to economic crisis. Finally, a conclusion for the entire diary is summarized for the overall impacts of economic crisis on the UK economy. Diary Entry 1: Exchange Rates Date of Input 07/ 03/ 2016 Reference of the source (Harvard style) Bootle, R., 2015. The exchange rate is the most important price in our whole economy. [online] Telegraph.co.uk. Available at: https://www.telegraph.co.uk/finance/comment/rogerbootle/11517297/The-exchange-rate-is-the-most-important-price-in-our-whole-economy.html [Accessed 7 Mar. 2016]. Choudhry, T. and Hassan, S., 2015. Exchange rate volatility and UK imports from developing countries: The effect of the global financial crisis. Journal of International Financial Markets, Institutions and Money, 39, pp.89-101. Giugliano, F., 2015. Exchange rates put squeeze on UK business - FT.com. [online] Financial Times. Available at: https://www.ft.com/cms/s/0/e56ce118-c8d7-11e4-bc64-00144feab7de.html#axzz42C3hL1iu [Accessed 7 Mar. 2016]. KoÄ enda, E., Maurel, M. and Schnabl, G., 2013. Short- and Long-term Growth Effects of Exchange Rate Adjustment. Review of International Economics, 21(1), pp.137-150. Spence, P., 2015. Why China has devalued the renminbi and how it will affect the UK. [online] Telegraph.co.uk. Available at: https://www.telegraph.co.uk/finance/china-business/11795811/Chinas-renminbi-gambit-why-it-has-devalued-the-yuan.html [Accessed 7 Mar. 2016]. Discussion of the content of the articles The rise in interest rate in the US and quantitative easing in Europe has pushed up the sterling against euro and pushed it down against the dollar. Such moves in exchange rates could squeeze the profit of various British companies. The rising dollar on the cost base of many companies has impacted on the price of raw materials. Any increase in the value of euro against the pound would hurt the profitability in business. In the long run, the rising pound value could adversely affect export volumes. The rising pound also impacts the bankers as they are trying to improve position with the task of rising inflation. The economists expect the interest rates to increase over the next two years. The increase in exchange rate is making the people aware for any pound spent (Giugliano 2015). The authorities of China took a shocking decision by devaluing Yuan by over 2pc against the US dollar. This could be troublesome for the UK-listed shares. China is known to be the worlds largest consumer of metals and the change in exchange rate expected to drag down miners due to slowdown in the worlds second largest economy. Further, the UK retailers having a large exposure to China were also hit. A weaker Yuan made imports even expensive and there was a decline in shares in exports for luxury goods makers. According to CBIs director for economics, there is pressure on UK exports to China in the short-term. However, the effect on Chinese growth would be beneficial in the long term for UK exporters. There are opportunities for Britain to achieve a slower and sustainable growth. UK can reduce trade barriers as the consumers become more affluent (Spence 2015). Critical review of the content of the articles using academic sources words The exchange rate is the most important price in the UK economy. The economy will suffer if the exchange rate goes wrong. It is difficult to anticipate what s going wrong when pound is moving in different directions against different currencies. The trade weighted index gauges pound movements against other main currencies such as dollar through the trade-weighted index (TWI). For TWI, the euro is single biggest component while dollar stands second. Also, there is improvement in competitiveness since the recent rise in pound. According to the argument presented by John Mills, excessive high sterling rate leads not only to weak net exports but also shrinks the size of manufacturing, low productivity, low investment, high unemployment and other economic ills (Bootle 2015). There are three main factors responsible for exchange rate volatility during the current financial crisis- enormous currency depreciation against the US dollar, current account position and the size of foreign exchange reserves. UK faces exchange rate volatility from three major developing countries- South Africa, Brazil and China. The exchange rate volatility is important as it suggests UK import behaviour in the current economic crisis period. The UK trade adjustment programs could prove unsuccessful if the third country exchange rates discourage import expansion. There is asymmetric behaviour between exchange rate volatility and UK real income and import price ratio. The UK imports from the above three countries decrease if the real exchange rate volatility between dollar and pound increase (Choudhry and Hassan 2015). There are various pros and cons of the exchange rate adjustments in the UK economy. The adjustment tools such as independent monetary policy and exchange rate made wage and price adjustments necessary. These changes triggered various policy responses. In the Keynesian view, depreciation helps in jumpstarting the economy. The international competitiveness can be regained instantaneously. Keynesian mainly concentrated on the short-time dimensions with a capital and goods market perspective. However, Hawtrey assumed that low-cost credit during the crisis would help in preventing a credit crunch. There are long-term growth effects of crisis therapy (KoÄ enda, Maurel and Schnabl 2013). Therefore, the overall effect of economic crisis on the exchange rates is negative. The country can proceed with real wage cuts and structural reforms. The rise in exchange rate for other countries against UK pound may prove beneficial for the economy in the long run. The UK products become cheaper in the international market with a decline in value of the pound. Diary Entry 2: Employment Date of Input 07/ 03/ 2016 Reference of the source (Harvard style) Blazek, J. and Netrdova, P., 2012. Regional unemployment impacts of the global financial crisis in the new member states of the EU in Central and Eastern Europe. European Urban and Regional Studies, 19(1), pp.42-61. Dietrich, H., 2013. Youth unemployment in the period 2001-2010 and the European crisis - looking at the empirical evidence. Transfer: European Review of Labour and Research, 19(3), pp.305-324. Grayling, C., 2011. UK unemployment total reaches 17-year high - BBC News. [online] BBC News. Available at: https://www.bbc.com/news/business-15271800 [Accessed 7 Mar. 2016]. Tanveer Choudhry, M., Marelli, E. and Signorelli, M., 2012. Youth unemployment rate and impact of financial crises. Int J of Manpower, 33(1), pp.76-95. Waterfield, B., 2014. Euro 'increasing unemployment and social hardship', says EC. [online] Telegraph.co.uk. Available at: https://www.telegraph.co.uk/finance/financialcrisis/10587724/Euro-increasing-unemployment-and-social-hardship-says-EC.html [Accessed 7 Mar. 2016]. Discussion of the content of the articles The global crisis leading to economic recession had caused and is still causing advere impacts on UK economy. Other than exchange rate fluctuations, the economic crisis has also impacted the employment rate. According to The Office for National Statistics (ONS), the rate of UK unemployment rose by 114,000 between June and August to 257,000. Unemployment is one of the key measures of inequality along with wages. The figures for unemployment were also reported as 21.3%, a high record of 991,000 for the 16 to 24-year-olds. Other figures show a reduction in employment by 175,000 for part-time workers, 74,000 for people over 65 years. Clearly, these figures are the impact of international financial crisis. The increasing unemployment figures are very disappointing. The economy would likely get weaker. The UK economy pursued deficit reduction for retaining the confidence of commercial markets and encouraging business in UK (Grayling 2011). With the deepening economic divisions between rich and poor eurozone countries, there has been an increase in unemployment and social hardship. The single currency in Europe is fuelling inequality. Also, the loss of sovereignty forced to drive down the living standards of people. The social divergences and unemployment rates are a sign of EU not fulfilling the fundamental objectives. After economic lost years and millions of unemployed throughout the EU, it is very little and too late for the commission to come around to face reality. The euro area countries are attempting to regain competitiveness in the absence of currency devaluation option. The internal devaluation is not working efficiently and has increased recession in the recession. Eventually, recession has declined economic growth in Britain (Waterfield 2014). Critical review of the content of the articles using academic sources The rate of unemployment in UK increased after a prolonged recession of 2008-2013. The economy was stuck in a deflationary spiral. The economy faced stringent budget cuts thereby depressing demand. The depressed demand is making it difficult to increase exports. The UK economy has made efforts to reduce the unemployment rates. In the past few months, there has been a slight reduction in European unemployment, but, the prolonged period of mass unemployment is leaving significant social and economic problems for the whole Eurozone. The Paris based forum gave a warning to few countries such as Greece, Spain and Portugal as they recorded the highest rate of unemployment (Blazek and Netrdova 2012). The European Employment Strategy includes the integration of youth in the labour market. There was a dramatic rise in the youth unemployment after the recent global economic crisis. Youth unemployment is at a much higher rate than the adult unemployment. The European Union is reported to be the most impacted areas in the world due to economic crisis. There has been no improvement in the employment rates for young people despite the European Employment Strategy in the last decade. The multiple features that characterize the rates of unemployment in UK are the quality, stability and performance standards at work. Financial crisis impact on the YUR is statistically significant and robust; the impact seems more significant for highà ¢Ã¢â€š ¬Ã‚ income countries (Tanveer Choudhry, Marelli and Signorelli 2012). The youth labour plays a critical role in increasing employment. The effects of rising unemployment in the UK economy must not be underestimated. Not only the pressure is built upon benefit system, but also the taxable income is reduced. Keeping aside the purely financial implications, the growing unemployment in UK also affects the students who have gone to college or other further education. The unemployment rates also impact the spending within the economy leading to pricing pressure, cost-cutting and job losses. The people are affected as they seek and struggle to find the luxuries of life. The global economic crisis as caused due to the problems initiating in the US banking system. The rising unemployment and a shrinking tax basis put additional pressure on public expenditure (Dietrich 2013). Therefore, tackling unemployment has been an increasing worry for Organisation of Economic Cooperation Development (OECD). The government need to work harder for equipping workers that have skills to adapt and cope up with the fast-changing economic landscape. Diary Entry 3: Housing and Property Market Date of Input 07/ 03/ 2016 Reference of the source (Harvard style) Boyce, L., 2015. UK property isn't a bubble, academics claim, but London is on the cusp. [online] This is Money. Available at: https://www.thisismoney.co.uk/money/mortgageshome/article-3300549/UK-property-market-isn-t-bubble-academics-claim-London-cusp.html [Accessed 7 Mar. 2016]. Foster, D., 2016. Housing blew up the global economy in 2008 and we learned nothing. [online] the Guardian. Available at: https://www.theguardian.com/housing-network/2016/jan/29/housing-global-economy-2008-the-big-short-financial-crash [Accessed 7 Mar. 2016]. Foster, D., 2016. Is immigration causing the UK housing crisis?. [online] the Guardian. Available at: https://www.theguardian.com/housing-network/2016/jan/25/is-immigration-causing-the-uk-housing-crisis [Accessed 7 Mar. 2016]. Tse, C., Rodgers, T. and Niklewski, J., 2014. The 2007 financial crisis and the UK residential housing market: Did the relationship between interest rates and house prices change?. Economic Modelling, 37, pp.518-530. Whitehead, C. and Williams, P., 2011. Causes and Consequences? Exploring the Shape and Direction of the Housing System in the UK Post the Financial Crisis. Housing Studies, 26(7-8), pp.1157-1169. Discussion of the content of the articles The economic crisis has also affected the housing market in UK. The house prices have broken free and the asset prices are collapsing across the world. The mortgages are increasingly unobtainable and unsustainable because the house prices are leaping every year by tens of thousands of pounds. The housing market has been experiencing overwhelming prices in UK. Many people hoped that gambling with housing would be forbidden after the 2008 crash, but people became hooked with profit and continued to make profits out of the housing market. The UK housing market has no possibility of having any solution casualty-free. Fewer people would be able to afford homes if the house prices continue to rise. More people would become homeless because of huge mortgages. Even if the market becomes stable, the lack of access to housing puts would still be a problem (Foster 2016). It is claimed that London is on the cusp of housing bubble as there is a little sign of exuberant rises at a national level. London being at the cusp of a housing bubble could ruin the surrounding regions. The evidences state that the house prices are experiencing a sudden crash leaving the buyers with negative equity and large mortgages. The property prices have increased in the last 12 months by 11%. If the prices of London keep increasing at 2.75 per cent in every three months, the city would experience bubble-type behaviour. The rapid inflation in the London property market has spread the effects into the wider market in UK. A few places such as harrow, Redbridge, Newham, Bexley and Waltham Forest have recorded a huge growth in comparison to last year (Boyce 2015). Critical review of the content of the articles using academic sources The housing market plays a critical role in the UK economy. It also reflects the owner-occupation rate. The severity of the economic crisis in UK was unprecedented. The impacts lead to falling nominal interest rates. UK started experiencing falls in housing loan approvals and base rate for Bank of England from 2007. There was a decline in consumer confidence due to the threat of unemployment caused by economic crisis. There is a relationship between monetary interest rates and housing prices. The studies have found that change in the house prices and interest rates might be a result of shocks. UK faced credit crunch that can be associated with affordability further leading to supply of finance (Tse, Rodgers and Niklewski 2014). The housing crisis in UK has been called up for various causes. One of the causes is stated as immigration. It was claimed that more than one-third of the housing demand in Britain was due to immigration. It was further stated that the house prices would be low by 10% over a 20-year period if the demand was not caused due to mass-immigration. The migrants are more likely to reside in the private sector rather than living in social housing or buying homes. The population of renters is half in comparison with the total migrant population. It has also been found that immigration actually lowers house prices in some areas rather than raises. In case of immigration, the average local income gets lowered thereby decreasing housing demand and supply. However, immigration often leads to export of natives thereby reducing the demand for housing (Foster 2016). It has been found that the UK home ownership has declined due to rising prices, falling interests and worsening affordability. The credit crunch had immediate effect on the mortgage market undermining the capacity to operate. UK made a series of measures for protecting household savings and ensured that there was fund available for supporting economic activities. Although the policy saved but the structure of mortgage market worsened. The UK economy aimed at stimulating housing market. There was clearance in backlog of supply by supporting the homeowners by meeting mortgage payments (Whitehead and Williams 2011). Therefore, the housing sector in UK economy is adversely affected due to economic crisis. The demand for housing is geographic specific. The crisis has put downward pressure on the ownership rates. Diary Entry 4 : Tourism Date of Input 07/ 03/ 2016 Reference of the source (Harvard style) Broad, M., 2015. What impact would Grexit have on the UK? - BBC News. [online] BBC News. Available at: https://www.bbc.com/news/business-33165580 [Accessed 7 Mar. 2016]. Collinson, P. and Osborne, H., 2015. How the Greek financial crisis could affect your holiday plans. [online] the Guardian. Available at: https://www.theguardian.com/money/2015/jun/29/greek-financial-crisis-holiday-plans-holidaymakers-difficulties [Accessed 7 Mar. 2016]. Kotios, A., Pavlidis, G. and Galanos, G., 2011. Greece and the Euro: The chronicle of an expected collapse. Intereconomics, 46(5), pp.263-269. Meadway, J., 2012. The Euro: Crisis and Collapse?. Competition Change, 16(2), pp.150-159. Page, S., Song, H. and Wu, D., 2011. Assessing the Impacts of the Global Economic Crisis and Swine Flu on Inbound Tourism Demand in the United Kingdom. Journal of Travel Research, 51(2), pp.142-153. Stylidis, D. and Terzidou, M., 2014. Tourism and the economic crisis in Kavala, Greece. Annals of Tourism Research, 44, pp.210-226. Discussion of the content of the articles The hospitality and tourism sector was affected due to the global economic crisis. The international tourism faced various challenges. The strongest and most negative impact due to the economic crisis was on Greece. UK does not form a part of the eurozone (Meadway 2012). The country has not contributed to bail out Greece directly as the country suffered from various disadvantages after the economic crisis. The big euro zone nations such as Germany and France have been managing by contribution of 40bn and 30bn respectively. UK provided 1.72bn to the International Monetary Fund (IMF).Greece is one of the most popular holiday destinations in UK with over 1.73 million holiday visits. Devaluation in the Greek currency would make a great value holiday destination for the tourists (Broad 2015). Greece is on the lips of holidaymakers and the financial crisis affects the holiday plan. The card processing services are limited at short notice. The Foreign Office suggests withdrawing a large amount of cash in Euros before heading to Greece. The officials further suggest carrying other modes of payments such as debit and credit cards. There were various questions in the minds of tourists that have been discussed. The tourists are suggested to carry greater cash as the ATMs have restricted amounts for foreigners. Despite all limitations, Greece assures a high level of service to the tourists and makes the country a top destination across the world (Collinson and Osborne 2015). Critical review of the content of the articles using academic sources There are various causes of tourism fluctuations such as economic, political and environmental factors. Tourism crisis is caused due to fluctuating exchange rates, loss of market confidence and various other reasons. Greece is undergoing political crisis and tourism can be the driving force behind the economic recovery. The country took several measures to improve tourism such as environmental protection, boosting competitiveness, enhancement of alternative forms of tourism, creation of quality infrastructure and offering various products that offer value for money (Stylidis and Terzidou 2014). The global economic crisis affected the demand on UK inbound tourism. The major tourism markets are considered as India, Australia, Canada, Russia, US and many other countries. According to the data, 3.7 million visitors were lost because of the economic crisis. US and Germany were considered to be most affected markets. The crisis led to reduction in millions from these source countries. Since the revenue was lost directly to the economic crisis, the economic value of inbound tourism also declined. There was a decline in expenditure made by the tourists due to economic crisis (Page, Song and Wu 2011). The number of UK visitors dropped from 2.4 million to 1.4 million in 2007 for Greece. The economic crisis led to decline in the value of sterling leading to credit crunch in 2009 and 2010. The UK visitors not only declined in Greece but across the world. There are various internal and external forces that lead to negative tourist perceptions. The spending of consumers has declined by both individual and corporate customers. There has been a decline in foodservice, lodging and other hospitality products. The luxury hotels have been majorly affected due to economic crisis. The tourism sector is an important driver of growth as it plays a key role in poverty reduction and prosperity (Meadway 2012). Conclusion Economic crisis has exacerbated differentiated impact across the globe. This diary attempts to determine the impact of economic crisis on unemployment, UK housing markets, exchange rate fluctuations and property prices. The common impacts of the economic crisis are reported as increase in unemployment, negative effects on balance of payments, growing budget deficits, reduction of fiscal space and tax revenues, reduced revenue from tourism, foreign exchange rate fluctuations, collapsing housing markets and various others. The global economy was slowed down with losses in billions and there is a debt crisis in the current European sovereign. The rising pound also impacts the bankers as they are trying to improve position with the task of rising inflation. A weaker Yuan made imports even expensive and there was a decline in shares in exports for luxury goods makers. According to CBIs director for economics, there is pressure on UK exports to China in the short-term. The adjustment tools such as independent monetary policy and exchange rate made wage and price adjustments necessary. These changes triggered various policy responses. In the Keynesian view, depreciation helps in jumpstarting the economy. The country can proceed with real wage cuts and structural reforms. The rise in exchange rate for other countries against UK pound may prove beneficial for the economy in the long run. The economic crisis has also affected the housing market in UK. Many people hoped that gambling with housing would be forbidden after the 2008 crash, but people became hooked with profit and continued to make profits out of the housing market. It was claimed that more than one-third of the housing demand in Britain was due to immigration. It was further stated that the house prices would be low by 10% over a 20-year period if the demand was not caused due to mass-immigration. With the deepening economic divisions between rich and poor eurozone countries, there has been an increase in unemployment and social hardship.