The Impact of the Recent Recession on the British Economy - Essay Example

?Topic:Examine the Impact of the Recent Recession in the British Economy Introduction Recession is been a whirlwind which has brought about a disastrous down fall to many nations in the world. Among them the most affected are the super economy United States and one of the largest economies in the world, Great Britain. This economic crisis which reached peak in 2008 had shaken the foundation of UK economy in a destructive manner. The recession introduced instability in all sectors of British economy and was hardly hit on the banking and housing sector. According to (The Economist)“The economy of UK shrank by 5% last year, this was biggest fall since the Great Depression. The contraction over the six quarters of the recession was 6.2%. That peak-to-trough decline was less severe than in Japan, Germany and Italy, but the recession lasted longer than in any other G7 economy”. The recession has impacted every sector of the British economy like production, consumption, employment, energy use, and government spending and tax revenue. The fragile situation of the banking system greatly impacted all sectors of economy and many private companies were forced to close down or end up in loss. Many corporate and small enterprises cut down their employees, who had an overall effect on the earning capacity and spending power of the public.Morover there was also a notable decrease in the demand of energy use as production and consumption of the country declined. Due to recession people look in for alternative renewable sources as they were unable to afford fuel charges as they suffered from lower income and lower unemployment rates. Looking briefly in to the effect of recession on different sectors of British economy, the following can be explained: I) Changes in Production and Consumption: Production and consumptions is an endless cycle of any economy or market of a developed, developing nation. Britain being a large economy has major public and private companies operating under its constituition.With the breakout of recession, the production and service sector of the country was doomed and this indeed resulted in a tremendous cut in the employment rate of the country. The finance sector and manufacturing sector being interconnected was worse affected which led to the closure of small private owned organizations and many service outlets. In 2008 the UK GDP fell by 5.1 % and this could be mainly because the UK government supporting more the finance sector rather than the manufacturing sector. Due to recession the worst hit area was the construction sector of British economy. By December 2008 , the construction sector of Britain shrank at fast pace than ever, taking civil engineering and commercial sub sectors along with it.Morover the slump in the housing construction field resulted in a downturn in housing market sector. The manufacturing sector being interconnected affected all the production units of the economy which resulted in lesser profitability. Unemployment was the end result and lower household consumption was the end result. As per (Dolling) “Household final consumption expenditure accounts for about half of the expenditure measure of GDP and is seen as an important economic indicator.” II) Changes in Employment, Unemployment and Productivity; It is a very obvious fact that, recession can bring around sharp decline in the employment rate of an ecnomy.Since the productivity is low, there can be a very evident decrease in the job cuts and this is directly related to decreased house hold consumption .Many people were removed from employment and also faced with considerable cut in their salary rate because of slumber economy. “Troubled house builder Barrett last week announced plans to cut 1,000 of its 6,700-strong workforce while Pen dragon, the country's biggest car dealer, laid off 500 workers”(Blackden).If such is the case with employment cuts, unemployment rates in the country can soar which will make the people with less or no spending power. Since recession of 2008, many students who have passed out as graduates were with no available jobs or lesser occupational options. With such a downfall in labor market, the public is left with fewer options to earn a living. The production of the companies slow down and there is no demand for their products and services. According to the Labor market statistics the employment rate was 70.7 % and the 29.3 million people were employed in UK by 2011.Wheras, the unemployed people were 2.28 million which was 7.8 %.There were 23. 2 % people who were inactive and their age group were 16 – 64 years. This shows the productivity rate prevailing in the country and what percentage of people is being unproductive. III) Changes in Energy Use and Greenhouse Gas Emissions In a household or production unit ,energy used constitute most of the expenditure and in order to reduce the production cost or expenditure people tend to cut on energy usage. Also the level of economic activity in a specific market tends to directly affect the energy usage of the nation. Householders in an attempt to cut their spending rate use less energy and instead renewable sources and natural gas took over the place. According to (BP)“BP today launched its 2010 BP Statistical Review of World Energy, in which it announced that the global recession drove energy consumption lower in 2009 than the previous year, the first such decline since 1982”.Since the production in industrial and construction sector fell the demand for energy also decline relatively. There has found a dramatic decline in the green gas emission following the recession due to the decrease in the electricity and fuel use. On the contrary, this has definitely enabled the UK to easily reach its climate change target in a lesser time duration The reports released by government showed that the green house gas emission has declined by 8.7% for the period of 2008 to 2009.Also the carbon dioxide levels lowered to 9.8 % and this could be connected to the lessened activity in the transport, construction and industrial sector. It is a surprising fact that UK has already achieved its 2016 climate change target, given that things stay as it is been in 2009 levels. Due to recession the businesses have given an “emission holiday” to environment, which is a positive change from ecological point of view. However, a change to renewable energy by both businesses and householders is the best solution to remain eco -friendly. IV)Changes in Government Spending and Tax Revenues. During recession the government spending has been cut sharply to tackle the financial issues. The government’s 63% spending on public goes on health, education, social security and pension.But due to recession government have been cutting down on their expenditure on every sector and is attempting to increase their spending by increasing taxation or borrowing from available sources. “The PBR (annual government borrowing) forecast for 2010/11 is for net borrowing of ?149 billion or 12.6% of GDP”(Clovis).Unfortunately, borrowing more money can only put the country into more trouble and the only option left is increasing tax revenue. Due to recession the government was receiving lower tax receipts and is spending more on unemployment benefits which is obviously an uneven balance. The tax revenue of the country also had reduced at a considerable rate due to the impact of recession. According to HMRC statistics, the tax authorities assume the higher tax payer’s rate would decrease for 3.89 million to 2.9 million in 2009 -10.As the income of the householders and business enterprises decline, the tax paid to the government also decrease automatically. Because of recession the government is focusing more on wealthiest tax payers to enhance their tax revenues. The proportion of rich people is getting lower and this worries the government regarding their income from tax revenues. If the income from tax revenue is plummeted then undoubtedly the government spending gets decreased to a considerably low level. For government, tax revenue is the most important form of income and with out it they would become weak and become unable to concentrate on public spending. . Conclusion The recession had plunged the British economy in to a worst scenario from where it has been difficult for the nation to climb back. The country has met with such a financial disaster from which coming back to a normal economy seems uncertain and far away. The companies in Britain are struggling to keep up their position in normal status in the period of credit crunch. The UK corporate is expecting the worst yet to come as they see no signs of recovery in the British economy. More than a million of people are unemployed in the nation which crashed the spending of householders. The government is also cutting on public spending due to the tax revenue decline and allover the situation looks gloomy and grim. The best way suggestive to the government is to spend more on science and technology to see further improvement in the already economy of the country. Since the banking system is in a pathetic condition, the credit offer to public has hit a considerable low. With people having no employment, less government spending, and, lessened tax revenue, the only plus point of recession was low greenhouse gas emission. The best way to find solution to recession hit economy is for government to enact stimulus spending packages and increase export and cut imports to a certain level. There should also be stimulus packages from government to banking sector as this can allow credit offers to the consumers which can stimulate consumer spending rate. References BP. "Recession Drove 2009 Energy Consumption Lower ." BP Global. Bp Inc., 09-06-2010. Web. 3 May 2011. Blackden, Richard. "Recession threat as UK jobs vanish." The Telegraph. Telegraph Media Group Ltd., 06-07-2008. Web. 3 May 2011. . Clovis, . "UK National Debt." Economics Help. Economics Blog, 26-03-2011. Web. 3 May 2011. Read More