RECESSION 2022

BY:- OSHANK NAGPAL

SKG202E0265
Yes, you guys are thinking right I am talking about the
UK recession 2022.
So, let’s start from the crust, what is recession? So, we
can define recession as the temporary economy decline
so during this period the trade and industrial activities
got reduced or we can say the fall in GDP from the last
two successive quarters. So, in layman language we can
say that recession occurred when there is a wide drop in
spending and with a high unemployment rate.
So, the story is, In UK inflation hits badly. The prices of
everything are increasing including fuels, energy,
grocery. Inflation hits double digits around 10% and the
Bank of England forecasts that it will increase more in
the last quarter of 2022 or quarter 1 and 2 of 2023. The
main reason for the rise in inflation is the sharp rise in
energy caused by the Russia Ukraine war.
The Bank of England had also raised the interest rates
from 1.25% to 1.75% and this is the highest level since
2009 and they are also expecting that the interest rates
will also increase to 4% till the end of 2023.
And we can also see in UK the unemployment rates is
increasing rapidly from the last 2 years and they are
also expecting it to grow more.
And finally, the UK GDP growth rate has slowed, and
the output is also falling in this quarter and UK GDP
fell 0.1% in this second quarter.
MAJOR STEP BY UK GOVERNMENT OR Mini
Budget
From October 1, 2022, a new energy price guarantee is
announced which means a typical UK household will
now pay up to an average of 2500 pounds a year on
their energy bills or we can say they had created an
energy price cap.
UK last PM Liz Truss did massive tax cuts without
providing much info how would this be funded
According to her This Tax cut would going to add 0.6%
to their GDP in 2023 which will lift UK growth rate.
Her motive was just to stabilize the UK economy.
BUT
This Mini Budget affects negatively as it again led to
rise in inflation again and the interest rate again rises.
In the short term, yields on UK sovereign bonds have
shot up after the mini budget, increasing the
government cost of borrowing.

As we know government has two areas of earning that

is increasing taxes and borrowing, here in this case we
have seen that the government had reduced the tax
rates, so the last option has left is government
borrowing. And for this the government has issued
bonds to control the money supply in market and due to
this the cost on investment rises and this led to increase
in unemployment rates, and this is known as crowding
out private investment means increase in interest rates
lead to reduction in private investment spending. The
Bank of England was forced to intervene in the
financial markets and launching a bond buying
operation to control the volatile interest rates.
Now, it is still clear what will Rishi Sunak do? Whether
they would increase the taxes or spend less is difficult
to say
The best the US government can do is raising capital
income taxes rather than cutting public spending or
raising income taxes.
So, at last I would rather say that the UK economy is in
Stagflation not in recession as Stagflation is the phase
in which there is a slow economic growth with high
inflation, and it does create unemployment and I would
say that UK economy is a perfect example of
stagflation.