Challenges faced by Uk economy

Erosions ontogeny forecast at 0. 8%, next course of study 1. 3% Global harvest-tide expected at 3. 3%, next year 3. 8%, both sedate termed too plausive by MIFF, condescension revising it the second time this year Auks expected growth appraise 2. -3. 1%, revised from 3. 8%. 2013-14 growth was 1. 7 merchandises. 6% growth, revisal from 2. 2%. All above fgfiguresre for 2014-15 pecuniary The dilemma Economy growing despite loans lessen. Shows bad state of manufacturing sector, non veracious in long run observe interest judge cant be growing as un operatement still hi lavishlylandacante reduced as it spontaneous increase whoppingness in truth Growth The titular figures whitethorn shoot down many, so we show the growth in Real GDGAPince the start of 2013, the I-JKJconomy has experienced imperious scotch growth one of the elelatedlyest performances in Europe.However, Real GDGAPs still fractionally be petty(a) its pre-crisis peak of 2007. The rec everywherey has be en stronger in the portion sector than manufacturing and industrial issueput. There argon fears the I-JKJecovery is still unbalanced relying on politics disbursement, service sector and ultra-loose mo networkary policy. 0AAndhat it might correct once the key interest pass judgment atomic number 18 increased Real GDGAPs not yet back to the pre-crisis level. The fgfigureshown by us are as per the data soon available in the universal domain.And so, it is outlay bearing in mind that sometimes economic growth statistics get evbeviest a later stage. 0 Factors affecting growth Self-explanatory Challenges Unemployment Define and introduce the chore on your own. Explain the diagram Reasons niche causation cyclical, demand deficient unemployment. With locomote unfeigned GDGAPfirms are producing less and in that locationfore, in that location is less demand for workers. Also in a respite, some firms go out of business create people to pretermit their Jobs. Structural ca lculates. There is structural unemployment referable to the fast changing nature of the economy.For example, manufacturing Jobs find been lost due to the economy fit more service sector based. most unemployed workers instance found it uncorrectable to get Jobs in new high tech industries because they lack the relevant skills. Problems Increases congener poverty in the UK. (Unemployment benefits are substantially note than average leases). Unemployment is particularly stressful, causing alienation and reduced living standards. budgetary cost. Persistently high unemployment adds to the budget famine. The governing body have to spend more on benefits, and they receive set about taxationes.If unemployment come acrosss, it will be much easier to tackle the budget deficit. In August 2014, Public sector net debt (PSSANDx) was El ,432. biBillion77. 4% of GDGAPIn the short term, government debt is less pressing than the government have claimed. Since 2010, they have given ind ication that reducing debt levels are the most pressing economic problem. Because of debt, the government have pursued austerity leading to lower growth. I note the government unnecessarily panicked over debt. Nevertheless, long term consumption commitments and semipermanent debt forecasts are a problem.With an ageing macrocosm and perhaps lower growth rates, it could be difficult to finance long expenditure commitments from up-to-the-minute tax levels. Debt is a long-term problem rather than short-term. Reasons 2008-13 nook (lower tax gross, higher spending on unemployment benefits). The turning point particularly hit stamp obligation (falling house prices) income tax and lower flock tax. Financial bailout of Northern Rock, RBORBSLlLloydnd early(a) banks. reside Payments. The cost of paying interest on the governments debt is very high.In 2011 Debt interest payments were E4EYEillion a year (esest.3% of GDGAP Public sector debt interest payments will be the 4th highest department after social security, health and education. Debt interest payments could come on close to E7Beeniven the forecast rise in national debt. Higher Taxes / lower spending in the future. Crowding out of hidden sector investment / spending. The structural deficit will only get worsened as an ageing population places greater strain on the UKAuksension liabilities. (demographic time bomb) capability negative impact on commute rate.Potential of rising interest rates as markets become more reluctant to take to the I-JKJovernment. pompousness CPICPnflation rate 1. 5% (expected) Inflation is oc menstruationly a relatively churl problem because it has locomote to be at bottom the ovoverpaymentsarget. However, with rising energy prices, it could resume its upwardly trend in the coming months. This cost-push inflation is a problem because with low nominal wage growth, many could see a fall in living standards (causing an increase in fuel poverty). Also, savers may be adver sely affected because interest rates are low.Reasons Rising energy prices low gear real wages Fall in living standards Increased poverty new Account Deficit The deterioration in the UK current write up is a cause for some concern because it is occurring in a box. Usually a street corner leads to lower imports and an mp amelioratementn the current account. This deterioration in the current account suggests the I-JKJould have declining international competitiveness, though it may also be a temporary situation related to EuRezonerisis. Reasons Overvalued vary rates. Countries in the EuRezonehich became uncompetitive (e. . Greece, Portugal and Spain) experienced large current account deficits. This is imports are cheaper. This encourages internal consumers to buy imports. It also makes it hard for exporters because they are relatively uncompetitive. High Consumer Spending. If there is rapid growth in consumer spending, then there bes to be an increase in imports causing a deter ioration in the current account. For example, in the 19sassoom, we saw a fall in the savings rate and a rise in I-JKJonsumer spending this caused a record current account deficit.The recession of 1991 caused an improvement in the current account as import spending fell. insane Economy. An economy focused on consumer spending rather than investment and exports will tend to have a bigger current account deficit. Competitiveness. Related to the exchange rate is the general competitiveness of irrimsIf there is a decline in relative competitiveness, e. g.GriRisingage costs, industrial unrest, poor quality goods then it is harder to export causing a deterioration in the current account.Recommended Solutions Reduce consumer spending done tight fiscal and tight monetary policy. E. g.GhiHigherncome tax will reduce disposable income and therefore reduce spending on imports (however, it will also lead to lower economic growth) Supply side policies to improve competitiveness Devaluation of the exchange rate. This makes exports cheaper and imports more high-priced Poor lalaborroductivity LaLaborroductivity measures the output per worker in a period of time. LaLaborroductivity is an important factor in determining the productive authorization of the economy.Reasons LaLaboroarding. (When firms hold onto workers). Unemployment has risen by a smaller amount in the 08-12 recession compared to previous recessions in 1981 and 1991, and now unemployment has fallen to 6. 2% . This could support the theory that firms are preferring to hang onto workers, despite lower demand. Firms may feel this prevents having to rehire and retrain workers after the recession ends. Though he length of this current recession makes this surprising, and its uncertain why its possibility in 2008-12 more than previous recessions. low levels of investment.The credit crunch has held back investment because firms struggle to gain finance or dont have the confidence to invest in new capital. This c ould hold back lalaborroductivity growth. go real wages. During the recession, the I-JKJas seen falls in real wage growth. If real wages are lower, firms may be more willing to employ lalaborather than capital. In other speech low wage growth nub lalabors relatively more attractive than usual. consequently with lower lalaborosts, firms are willing to employ more workers and lalaborntensive production methods. dismount output Lower wages With falling productivity, firms cannot afford wage increases. This is leading to depressed income tax receipts for the government. Lack of Infrastructure Investment The recession has seen a fall in public sector investment. This threatens long-term there are also concerns over other show side problems, such as obstinate lalaborarkets and lack of vocational skills. External Factors umteen of the I-JKJroblems are due to domestic factors low spending, low investment, egactiveutput gap. However, because the I-JKJelies on trade with other countri es, especially Europe, external factors are a potential problem.