Economic Recession of United Kingdom - Essay Example

Macro and Micro Economics 7 May Economic Recession of any Country An overall deceleration of economic activities and business cycle reductions are defined as recession in economic terms. However, no standard definition exists but generally, a period of falling economic activity is characterized as recession. It ensues in a fall in investments, Gross Domestic Product, utilization of capacity, income per capital, gains from businesses and inflation. On the other hand, macroeconomic indicators such as unemployment, insolvencies, and the unemployment rate escalate. Widespread downfalls in spending patterns accompanied by either unfavourable supply shocks or end of an economic bubble ensue in recessions. Governments use expansionary fiscal measures in order to deal with recessions, for instance, by an increase in the money supply or government spending and reduction in taxes. An annual decline in terms of quarterly gross domestic product (GDP) in real terms for a minimum of two consecutive quarters is known as technical recession. Nevertheless, proponents argue that this classification ignores the variables of unemployment and consumer loyalty. A broader definition tends to suggest a recession as period of falling economic output and employment. In addition, another definition also exists based on the diagrammatic model of life stages of an economy. It illustrates that recession begins when economic activity is at apex and starts decelerating and ends when economic activity hits bottom and then starts accelerating. Recession and Depression are often confused together. The prime distinguishing factor relates to quantities, Recession beyond a particular rate is termed as depression. A primary illustration was The Great Depression in America during 1929-1933 when the gross domestic product crashed down by nearly 33 percent. Recession The early 1980s witnessed the challenging economic worldwide recession, which influenced majority of the developed nations during the period of 1970s and 1980s. The repercussions of recession were evident in America and Japan quite early; nonetheless, high unemployment adversely influenced other Organisation for Economic Co-Operation and Development (OECD) countries almost until 1985 (Moy). The long-term consequences resulted in the debt crisis across America and Latin, the savings and loans catastrophe that hit America; therefore, more neoliberal economic approach was adopted during the 1980s and 1990s. United Kingdom was also victimised by recession during 1980s; even though the economy had encountered endless economic predicaments throughout the 1970s and unemployment had significantly risen since mid of 1960s. The general election conducted in 1979 led to the victory of the Conservative Party headed by Margaret Thatcher. Workers of the public sector struck the nation with protests, this period were termed as “Winter of Discontent”. Margaret Thatcher aimed at curtailing inflation by monetary measure; and altered trade union legislation in the hope to put an end to the stricken that had afflicted Britain for several years (Holden, Matthews and Thompson). Reasons for recession Within a short passage of time, the war against inflation ensued in closing down numerous unproductive factories, shipyards’ and coalmines. This brought down inflation by 10 percent in the fall of 1982, and 4% in spring of 1983 that was a record in 15 years. On other hand, strikes were also recorded as minimal in comparison to early 1950s. However the downfall of the policy was that unemployment rose by 3,000,000 in 1982, such a low level had not been registered since half a century. This amounted to 12.5 percent of the total working population. Northern Ireland was the worst stricken region with unemployment up to 20%. It surpasses the level in Scotland and northern England by 15%. The figure of 2,000,000 that appeared at the conclusion of the 1980 had never appeared before within a span of 50 years. Industry incurred immense losses as result of Thatcher’s policies. From being ranked as the “workshop of the world” United Kingdom engaged in importing goods for the first time in history. As recession continued to grow deeper into the economy by the beginning of 1981, unemployment escalated to 3 million, production capacity shrank by fifth, and the livelihood of the mining sector was threatened (Buxton, Chapman and Temple). The escalating losses experienced by the industry and succeeding adverse increase in unemployment had the worst impact on South Wales, the West of Scotland and the West Midlands. The average income in 1982 was recorded at almost 12.4 percent but in other regions, it was close to 20 percent; and continued to remain sky-high in the coming years. The widespread unemployment and social disgruntlement are deemed to be the fundamental reason for riots in Britain during 1981. After four years elapsed, the economy was allegedly no longer in recession yet unemployment was rampant; thereby, ensuing in chaotic strikes throughout Britain. In spite of the economic revival subsequent to the economic recession of 1980, unemployment hardly lowered. Measures taken for Revival of the Economy The Keynesian theorists advocated that deficit spending, reduction of interest rates would steer the economy towards a gradual economic revival. As opposed to this, conservatives maintain that the recovery can be fundamentally attributed to lowering tax rates. Unemployment of 10.8% fell during 1982 was cut down to a startling 7.2% in 1984, with approximately two million people being signed off the unemployment rolls. Remarkably, inflation also diminished from 10.3 percent in 1981 to 3.2 percent in 1983. Corporate profits accelerated by 29% in 1983 as compared to 1982. Notable and extraordinary improvements were made in the industries that were chiefly targeted by recession such as the auto industry, airlines etc. Although, the economy exhibited signs of growth in 1982 but widespread unemployment was not over yet. The rate of unemployment hit the top with a record-breaking 3,300,000 unemployed and it remained approximately this high until 1987. This was the year of ‘Lawson Boom’, titled after the cutback in taxation directed by Chancellor Nigel Lawson. This ignited an economic boom, which led to drastic fall in the rate of unemployment. Within the subsequent 3 years, unemployment was reduced to half. However, essentially there were myriad incentives that led to the revival of the economy. For instance, the inception of Enterprise zones that led to the establishment of new and commercial projects on reindustrialized sites, which were previously occupied by conventional industries. Businesses were offered a variety of incentives such as tax breaks, holidays, and exemptions for a given time period, in order to encourage investment in these areas. Works Cited Buxton, Tony, Paul Chapman and Paul Temple. Britains Economic Performance. London: Routledge, 1998. Holden, K., Kent Matthews and John L. Thompson. The UK Economy Today. Manchester: Manchester University Press, 1995. Moy, Joyanna. "Recent Trends in Unemployment and the Labour force: 10 countries." Monthly Labour Review (1985): 9-22. Read More