Extract 1

Extract 1

Economic growth
1. Growth in manufacturing, construction and agriculture as well as the service industry
2. Output just under 2013 peak-recovery is merely restoring economy to pre recession
3. services make up 80% of UK GDP
  1. over dependent on services, need more growth in manufacturing sector
    1. In the past manufacturing was great, some people argue it is essential for job creation, productivity gains, and exports and imports.
Unemployment
1. Unemployment has fallen- but only by a small amount
  1. Could be as a result of seasonal changes, i.e. more jobs in spring/summer
2. Long term unemployment has risen
  1. definition
  2. Consequences
    1. e.g. Hysterisis
    2. opportunity cost in lost production, economy is operating inside PPC curve
    3. adds to government deficit and national debt - unemployment benefits
  3. Despite of the recovery the long term unemployed are being left behind - jobs are going to new entrants into the job market
3. Employment rate has fallen
  1. The percentage of the working age population who are employed
  2. could be as a result of the long term unemployed no longer putting themselves forward for work
    1. Hysterisis
      1. leads to a loss of skills and human capital, workers could become used to being unemployed and living on a lower wage and so would be less motivated. This could result in a permanently lower labour supply even after demand returns to normal. So unemployment may not return to pre-recession levels
4. Professor van Reenan conclusion: The extent of long term unemployment, and large scale non-employment could harm potential future growth of the economy - by curbing AS and AD
Fig.1.1
1. Doesn't believe growth is sustainable- components of AD are not high enough
2. Net business lending is falling - not enough people are borrowing to finance consumption and not enough firms are borrowing to finance investment in extra capacity or more productive technology
3. Growth is low compared with Canada and USA
4. Some part of growth is because of the 2012 Olympics - investment in infrastructure, increased consumer spending and spending by overseas visitors (invisible exports). This would have had a multiplier effect however most of the boost would have been temporary and if without the games the UK growth is even more disappointing
5. Blames austerity- tax rises and government spending cuts decreases consumer and investment spending and so AD.
  1. 'talking down the economy' would decrease confidence and become a self-fulfilling prophecy
6. Raised concerns about another recession - did not come true - UK economy grew 0.8% Q1 + Q2 2014, in Q2 2014 GDP was 0.2% ore recession peak in 2008
Fig.1.2
1. Real wages continue to fall as price rises outstrip wage rises - reduction in spending power
  1. With lower real incomes, consumer spending will be restricted
2. GDP per head is 7% below 2007 peak - but part may be because of population growth
3. no movement from consumption towards investment and exports (to boost productive potential and improve the balance of payments)
  1. manufacturing sector hasn't increased - deemed crucial by some in terms of productivity gains, growth potential, employment and improving net trade
4. Exports have fallen despite a 20% depreciation in the exchange rate
  1. should have made exports more price competitive, so exports would have increased and imports decreased
    1. high exports and low imports hinders growth, worsens BOP and leads to job insecurity
5. exports and imports can act as a drag on growth - it will reduce AD and worsen the BOP, this can result in more borrowing and so increase the interest burden on the UK economy
Conclusion
1. The growth that has occurred since the data was collected suggest the performance has been better than the pessimists feared
  1. However the weaknesses identified still need to be addressed
2. evaluation conclusion: note the progress made but stress the weaknesses in the economy: high long term unemployment, growth remains comparatively low, external trade remains disappointing, government debt is still high, and living standards have not returned to pre-recession levels

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