Challenges faced by Uk economy

Erosions harvest-home forecast at 0. 8%, next year 1. 3% globose ingathering expected at 3. 3%, next year 3. 8%, twain still termed too optimistic by MIFF, despite revising it the 2nd judgment of conviction this year Auks expected growth grade 2. -3. 1%, revised from 3. 8%. 2013-14 growth was 1. 7exports. 6% growth, revision from 2. 2%. All above fgfiguresre for 2014-15 fiscal The dilemma Economy growing despite loans reducing. Shows gravely state of manufacturing empyrean, not good in spacious run Key pursuit rates cant be increased as un applyment still hihighlandacante reduced as it volition increase inflation sure maturation The nominal figures whitethorn fool many, so we show the growth in in truth GDGAPince the start of 2013, the I-JKJconomy has experienced positive stinting growth one of the elelatedlyest performances in Europe.However, Real GDGAPs still fractionally be emit its pre-crisis peak of 2007. The recuperation has been stronger in the service vault of heaven than manufacturing and industrial output. There atomic number 18 fears the I-JKJeco very(prenominal) is still excited relying on political relation spending, service firmament and ultra-loose monetary policy. 0AAndhat it might worsen erst the key interest rates ar increased Real GDGAPs not tho back to the pre-crisis level. The fgfigureshown by us ar as per the data watercoursely procurable in the public domain.And so, it is worth demeanor in mind that somewhattimes scotch growth statistics loaf evbeviest a afterwards stage. 0 Factors affecting growth self-explanatory Challenges Unemployment Define and introduce the hassle on your own. Explain the diagram Reasons Recession causing cyclical, demand deficient unemployment. With illumeing significant GDGAPfirms ar producing little and accordingly, there is less(prenominal) demand for workers. Also in a recessional, some firms go out of argument causing people to lose their Jobs. geomorphological facto rs. There is structural unemployment due to the riotous c descending nature of the providence.For example, manufacturing Jobs let been wooly due to the economy becoming to a greater extent service sector based. Some unemployed people workers necessitate found it catchy to get Jobs in refreshful high technical school industries because they leave out the relevant skills. Problems Increases relative destitution in the UK. (Unemployment benefits be substantially reduce than average net profits). Unemployment is oddly stressful, causing hallucination and reduced live standards. Budgetary hail. persistently high unemployment adds to the budget deficit. The pre positioningntial term lay down to spend to a greater extent on benefits, and they throw dispirit valuatees.If unemployment falls, it depart be very much easier to tackle the budget deficit. In portentous 2014, state-supported sector net debt (PSSANDx) was El ,432. biBillion77. 4% of GDGAPIn the short term, government debt is less pressing than the government put on claimed. Since 2010, they have given indication that reducing debt levels are the most pressing frugal hassle. Because of debt, the government have pursued austerity guide(p) to piteouser growth. I tonicity the government unnecessarily panicked over debt. Nevertheless, long term spending commitments and long-term debt forecasts are a problem.With an ageing population and maybe lower growth rates, it could be difficult to finance long-term spending commitments from authoritative tax levels. Debt is a long-term problem sort of than short-term. Reasons 2008-13 recession (lower tax receipts, high spending on unemployment benefits). The recession particularly hit stamp duty (falling plate prices) income tax and lower corporation tax. monetary bailout of Northern Rock, RBORBSLlLloydnd other banks. Interest Payments. The cost of paying interest on the governments debt is very high.In 2011 Debt interest payments wer e E4EYEillion a year (esest.3% of GDGAP Public sector debt interest payments give be the 4th highest department after cordial security, health and education. Debt interest payments could ascending closedown to E7Beeniven the forecast rise in theme debt. Higher Taxes / lower spending in the future. Crowding out of private sector investment / spending. The structural deficit will only get worse as an ageing population places greater bod on the UKAuksension liabilities. (demographic time bomb) Potential ostracise impact on exchange rate.Potential of ascending interest rates as markets fetch more reluctant to lend to the I-JKJovernment. ostentation CPICPnflation rate 1. 5% (expected) Inflation is presently a relatively minor problem because it has fallen to be within the ovoverpaymentsarget. However, with profits increase energy prices, it could resume its upward trend in the coming months. This cost-push inflation is a problem because with low nominal wage growth, many co uld see a fall in living standards (causing an increase in fuel poverty). Also, savers may be adversely affected because interest rates are low.Reasons Rising energy prices Low significant remuneration Fall in living standards Increased poverty Current cover Deficit The deterioration in the UK sure sum up is a cause for some concern because it is occurring in a recession. ordinarily a recession leads to lower imports and an mp expediencyn the flow rate flier. This deterioration in the circulating(prenominal) account suggests the I-JKJould have declining international battle, though it may withal be a makeshift situation related to EuRezonerisis. Reasons Overvalued exchange rates. Countries in the EuRezonehich became uncompetitive (e. . Greece, Portugal and Spain) experienced large current account deficits. This is imports are cheaper. This encourages domestic consumers to steal imports. It also makes it hard for exporters because they are relatively uncompetitive. High C onsumer Spending. If there is rapid growth in consumer spending, then there tends to be an increase in imports causing a deterioration 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 script current account deficit.The recession of 1991 caused an improvement in the current account as import spending fell. Unbalanced 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 frequent competitiveness of irrimsIf there is a decline in quality in relative competitiveness, e. g.GriRisingage costs, industrial unrest, light quality goods then it is harder to export causing a deterioration in the current account.Recommended Solutions Reduce consumer spending through prankish fiscal and tight monetary policy. E. g.GhiHigherncome tax will reduce disposable income and th erefore 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 expensive short(p) lalaborroductivity LaLaborroductivity measures the output per worker in a period of time. LaLaborroductivity is an important factor in determining the productive possible of the economy.Reasons LaLaboroarding. (When firms watch onto workers). Unemployment has risen by a smaller amount in the 08-12 recession compared to former 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 happening in 2008-12 more than previous recessions. Low levels of investm ent.The quotation crunch has held back investment because firms fight down to gain finance or dont have the confidence to invest in new capital. This could hold back lalaborroductivity growth. Falling literal 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 words low wage growth means lalabors relatively more attractive than usual. Therefore with lower lalaborosts, firms are willing to employ more workers and lalaborntensive production methods.Lower output Lower wages With falling productivity, firms cannot afford wage increases. This is leading to depressed income tax receipts for the government. wishing of Infrastructure Investment The recession has seen a fall in public sector investment. This threatens long-term there are also concerns over other supply side problems, such as inflexible lalaborarkets and lack of vocational skills. External Factors Many of the I-JKJroblems are due to domestic factors low spending, low investment, egactiveutput gap. However, because the I-JKJelies on trade with other countries, especially Europe, external factors are a potential problem.