The wealth of the households residing in UK had increased drastically mainly because of the housing bubble and an increase in stock market. Aggregate demand nurtured the level of employment with its major portion stemming from the public sector. However, the recent financial turmoil undermined the economy and it was forced to sink into a serious recession.
The percentage increase in GDP of UK had been stable over the past decade. According to the data it has been observed that a recessionary phase has been experienced almost after 18 years; last time it was observed in 90’s which is evident from Figure 1. As we know that, recessions are marked by a percentage decrease in GDP generally over two to three quarters thus we can draw a valid inference from the figure that UK plunged into the recession in year 2008.
The crisis traces its root in the financial sector which is the flagship of the UK’s economy. Since the financial sector is closely interlinked to all the other sectors, it exerted a detrimental effect on the other parts of the economy. As we know that financial sector mainly assist individuals and businesses in borrowing and lending of funds therefore this crisis had its impact on the ability of households and businesses to finance their needs. Public finances were hit hard by this upheaval which limited the ability of UK’s government to use fiscal policy to monitor the situation.
The current economic scenario is pointing an auspicious beginning for UK as the financial turbulence which swept across the world has subsided to a quite large extent. After six consecutive quarters of recession from April 2008 to September 2009, UK has finally unfettered from the recession since it has experienced a 0.1% growth in its GDP in the last quarter of the year (Figure 2) (Cook & Hayman, 2010). Technically, it is clear that UK has recovered from a recession. However, this financial turmoil has left a great deal of damage in its wake. Banks have become