UK Economy | Inflation | Deficit Spending

The UK Current Economic Conditions

September 8, 2010

Table of Contents:
Introduction«««««««««««««««««««««««««««««.««.«««««««.2 The UK Economic Outlook: July 2010«««««««««««...«««««««««««.3 The affect of the UK economic on the demand and supply of consumers¶ goods: 2010«««««««««««««««««««««««.««««...««««««««««8 Conclusion«««««««««.«««««««««««««««««..««««««««««««13 References«««««««««.««««««««««««««««..«««««««««««««14

Appendix 1: The United Kingdom profile
Appendix 2: The History of the UK economy Appendix 3: The Global Economy

Appendix 4: UK consumer goods and services graphs

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The UK Current Economic Conditions

September 8, 2010

I.

Introduction:

Since in 1992, t he Britain's economy enjoyed t he longest period of development o n record. In 2008, however, the global financial crisis hit, mostly harder, the UK economy, due to the significance of its financial sector. The financial crisis started in 2008, and it been consider as the biggest economic collapse since the world wide war II, and the great depression of 1929. During 2008, The GDP growth rate was -7%, and the prices inflation had reached 5.3% and the unemployment stood at 8.5. That resulted in UK economic growth decline by -4.1 in 2009. To reduce the destruction of the crisis, the government has attempted different methods and strategies. Such as, providing assurance for people and planning to restore consumer and business confidence and shore up employment and letting banks leading again. The government also put the interest rate at 0.5%. In the late 2009, the depression was expected to end in the last quarter of 2009. The analyses and the forecasts conclude that 2010 will be year for an economical recovery. So is 2010 a year of an economical recovery, or is it just another recession year? Did the UK economy have moved one step forward or backward, in 2010? This case study will discuss the current economic situation of The United Kingdo m and the effect of this economic situation on the price, demand and supply of some consumer goods. And the case study will end with a clear answer for the previous questions.

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The UK Current Economic Conditions II. The UK Economic Outlook: July 2010

September 8, 2010

A. The UK economic indicators:
1- The UK GPD growth rate in 2010

GDP growth 1.2% in 2010, change up from -6% in 2009. The output of the production industries remained unchanged at 1.0%. The construction outputs rose by 8.5%. The householder¶s expenditure raised 0.69% compeer with the fall in the last year. The government expenditure also rose by 0.3% and it is higher by 3.7% than it was in 2009. 2- The UK unemployment rate in 2010

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The UK Current Economic Conditions

September 8, 2010

Depressio ns commonly are involving falls in GDP and normally charact erized by rising unemployment . In 2008/2009, t he unemployment had reached 7.8%. Nevert heless, in t he first quarter of 2010, the unemployment rates stood at 8%, ind icat ing t hat t he recession is st ill rest ing, although t he increase in t he GDP.

3- The UK inflation rate in 2010

The inflat ion annual rate is 3.1% in 2010, rising sharply up from 1% in t he mid o f 2009. The higher petrol prices were an important reason in raising consumer price, the petrol prices have been increasing since the relative strength of the dollar and higher refining costs, as well as the growing price of oil. 4- The decline of UK pound: From 2008 Now that the pound has fallen to £1 = 1 Euro, this Pound decline was because of many reasons: The housing market Credit crisis UK current account deficit The large rise in government borrowing for 2009/2010.

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The UK Current Economic Conditions

September 8, 2010

5- The UK balance trade of 2010 The UK¶s scarcity on trade in goods and services was £3.3 billion in June/2010, and the surplus on trade in services was £4.1 billion in June. UK is having a Deficit in the balance of trade, even sharper that the one in 2009.

6- The UK interest rate: 2010 Bank of England announces the interest rate cut of 0.5. This cut was been influenced by the Governments

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The UK Current Economic Conditions
  - The UK current account:2010

September 8, 2010

The UK current account recorded a deficit of 9.6 billion in the first quarter of 2010. 1- The average of weekly earning:2010 The Average earnings growth including bonuses declined in Jun 2010, from the May rate of 2.7% to 1.3% in June 2010. Growth in average earnings excluding bonuses (regular pay) also decline from the May 2010 rate of 1.8 per cent to 1.6 per cent in June 2010. However, there is a positive growth compeering with 2009.

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The UK Current Economic Conditions
2- The UK consumer confidence

September 8, 2010

Even though, consumers became more confident about their personal financial situation and the general economy during 2010, they were less confident about making major purchases.

B. Review:
This paper discussed some of the UK economical indicators in 2010, whereby the GDP had strongly increased by 1.2%, but also the unemployment had rose to stand 8%. In addition, the inflation rate increase sharply to reach 3.1, plus the interest rate had been cut to become 0.5%. That resulted in the decline of Pound. In first quarter of 2010, the UK current account had decline by 9 Billion Pound. Influenced by these, the UK weekly earning average had decline 1.3% and the costumer/ business confidence in 2010 remains similar to May 2009.

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The UK Current Economic Conditions III.

September 8, 2010

The affect of the UK economic on the demand and supply of consumers¶ goods: 2010

A. The changes in the UK Products pieces:

B. The influence of the UK current economic condition of demand and supply:
The demand and supply curve are been influence by many factors, among these factors are; the current situation of a country, the income of the consumers, and the expected future prices. The UK economic condition in 2010 had a deep impact on the demand and supply of some goods and service. These impacts were either in the interest of suppliers or in the interest of consumers. Among these produces that seen a changes in its demand and supply curve are; the Food products, Used Vehicles, Oil, and houses,

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The UK Current Economic Conditions
1. corn I. The Demand & supply of corn

September 8, 2010

The demand on Corn had increased in UK, because of the growing demand from refineries that are buying corn to turn it into Ethanol. This rise in the demand was resulted by the new Green government plan in 2009 to face the high oil prices. Even though the supply also increased, the customers are still suffering a shortage of this vital food product. II. The price of corn:

The high demand form refineries on the other hand there is a law demand from consumer caused by the expensive price of core. The consumers who already suffer from unemployment and low weekly average earning started protesting against this price rise. Experts believe that cheap corn is history, because of unavailable substitute for corn.

2. Houses in UK: I. The Demand and supply of houses The low interest rate (0.5%), the positive consumer spending growth, the decline of the Pound in addition to the optimistic consumer confidence and the positive the weekly earning growth (income) and the growing population in 2010, resulted in an increase in the demand on houses. The demand had risen to reach the highest levels since 2007.

However, the supply of houses was way below demand. The gap between supply and demand will keep on increasing, unless the government started building 39,000 houses per year according to Experts. That decline in supply resulted by the cut in government¶s expenditure in 2009/2010,

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The UK Current Economic Conditions
The price of houses

September 8, 2010

The increasing the demand on houses had resulted in the drop in the houses prices. The average cost of a home dropped by 0.9% to £158,300. Sellers are also getting a lower proportion of their asking price, since the average house price is undervaluation of around 20 % in 2010

3. Oil and Petrol: I. The demand and supply of oil in UK

The demand for oil rise sharply this year, according to The International Energy Agency. In addition, the oil demand in UK is 2% higher than last year. Meanwhile, OPEC is started cutting its supply as a strategy to protect the current price from drop again. II. The price of Oil in UK

Crude oil prices have risen by about 30% this year to levels not seen since the early 1980s. The UK-traded Brent crude from the North Sea rose to $55 a barrel. The reasons behind this are: a- The rising demand: the UK economic expansion is driving what the International Energy Agency says is the biggest increase in oil demand for 24 years.

b- The low stocks: Oil companies have tried to become more efficient in recent years and operate with lower stocks of crude oil, which meanly been influenced by OPEC.

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The UK Current Economic Conditions

September 8, 2010

Oil process in 2010

4. Second hand Cars: I. The Demand, supply and price of second hand cars in UK

Demand for used cars in 2010 is increasing because of the new tax, the rising in the unemployment arte and the high inflation rate. So used cars becomes a good substitute for the expensive new cars. More than 5.1 million people are planning to buy a used car, spending over £25 billion. However, there is a big shortage in supplying quality used cars, and some dealers are having trouble finding cars to sell. Second-hand cars are gaining value rather than depreciating in the value due to a shortage in supply, and the increasing demand. According to CAP Motor Research Ltd the average family car has increased in value by about £600 in 2010.

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The UK Current Economic Conditions

September 8, 2010

IV.

Conclusion

The UK economy appear to be on the path to gravel recovery, but it will take a long time before the GDP growth and the high unemployment rates returns to per crisis levels. In 2010, the GDP growth had barely reached 1.2%, and the unemployment rate unexpectedly rose to 8.1%. In addition, cutting the interest rates to 0.5% resulted in the decline of the pound, and as a result of the low value Pound the inflation rose up to around 3.4%. The high inflation arte pushed the prices of many consumers¶ goods. Also since the low consumers¶ confidence, consumers spending remains relatively subdued growing by 0.5. Consumers¶ goods such as corn, used cars, oil and houses, as the paper analyzed, have seen an increase in demand and generally shortage and supply, that resulted in a risen of the price of some consumers¶ goods. So the Economic recovery may seem to be delayed until 2011, since the risk to suffer from a recession again, appear to be close and acceptable now. 2010 is a difficult year for the UK economy, after the deepest recession since the 1930s; the outlook is for a slow and small recovery, merged with the high unemployment, the government borrowing and the deficit of 9.6 billion in the UK current account.

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