EXPLAIN THE MACRO-ECONOMIC SIGNS OF A RECESSION IN THE UK

Introduction

The UK has been through several recessions, the most recent was in the last two quarters of 2008 to the third quarter of 2009. (The Guardian, 2009) reported that the financial sectors were in tatters especially RBS who revealed that they made a loss of £28bn as a result the government was forced to step in with a bailout package. Interest rate was cut to 0.5%, unemployment spiralled to £2.2mil the highest since 1981. In 2009 GDP shrank by 1.9% during the quarter, the worst since 1979.

Without any doubts, unemployment and economic growth are the two most noteworthy macro economic indications of a recession in UK and elsewhere. For government to achieve full employment and sustainable growth there must be an effective economic policy which outlines clear objectives that would yield consistent results of success.

Having said that, some of the objectives set are potentially in conflict with each other, which means that, in attempting to achieve one objective, another one is ‘sacrificed’. For example, in attempting to accomplish full employment in theshort-term,price inflation may occur in the longer term.

What is macro economic?

(Anderton, 2008, p.147) refers to “macro economics is the study of the economy as a whole”. To elaborate on Anderton’s definition, it is a branch of economics which focus on the different aspects of the economy and how they are interrelated to each other for generation of wealth. The aspects include performance of the country, its behaviour and decision taken related to the economy of the country. The major indicators of macroeconomics are unemployment, inflation, economic growth, interest rate and balance of payment.

What is recession?

(BBC, 2013) refers to recession as thedecline of real national output over two consecutive quarters causing a contraction in the total volume of production in the economy.

Economic indications of a recession in the UK

To know how well an economy is performing against these objectives, economists employ a wide range of economicindicators. Economic indicators measure macro-economic variables that directly or indirectly enable economists to judge whether economic performance has improved or deteriorated. Tracking these indicators is especially valuable to policy makers, both in terms of assessing whether to intervene and whether the intervention has worked or not.

• Economic Growth

According to (Tutor2u.com, 2014), economic growth “is the long term expansion of a country’s productive potential”. This productive expansion is measured by Gross Domestic Product (GDP) which is the official calculation used to compute output in most economies including the UK. Why GDP is so important? It is an important indicator because it measures the success of an economy. The general concept of GDP is that, the higher the GDP the more successful a country will be in terms productivity. In the UK, the growth of GDP is carefully observed by institutions and companies. The Monetary Policy Committee (MPC) of the Bank of England (BOE) used GDP as a means to set and adjust interest rate accordingly.

In a bid to control rising price in a recession, MPC could increase interest rate however if the economy is experiencing sluggish growth, MPC would be expected to freeze, lower interest rate, or weakening the sterling pound by means of trading it on the stock exchange market in order stabilise the economy. The Treasury and the Chancellor use the GDP to set economic policy. In case of contraction, taxes would be lowered and government spending would increase as a result.

The Office of National Statistics (ONS) uses the GDP figure to identify and assess which part of the manufacturing and services industry grew or shrunk. The ONS gathers and compares trading data against historic trends in order to provide useful statistics. By identifying the sectors or industries that are lagging behind government can address the problems by introducing apprenticeship schemes.