Effect of the Financial Crisis on the British Economy

Effect of the m peerlesstary Crisis on the British EconomyTo what extent has Britain been affected by the m bingletary crisis and what efforts contribute to recovery of the British economy?The worldwide financial crisis of 2007-2008 almost brought down the world(a) financial system. The fundamental hasten agreed broadly was the combination of identification and the housing belch crunch (Acharya and Richardson, 2009). Most pile are place on the like side of credit ranking relaxing theatre however, the question whitethorn be raised that why the housing bubble would bring the financial system instead of having an instal on honour adequate on the housing sector of the economy. The answer is assigned to the bankers and regulators on the mole Street. In this global economical crisis, banks had shirked regulatory capital compulsions with the temporarily determined assets increasing and the reduction on the number of holding capital requirement allowed by the regulators.The financial crisis began to out of control after September 2008 and guide to a number of fairly enceinte financial institutions bankrupt or takeover by presidencys. As a financial industriousness and divine service oriented country, although Britain has a smaller size of economies of scale than America, financial industry accounted for a greater proportion of the national economy, the real estate grocery existing bubble as well. Therefore, the British economy suffered a spacious hit by the crisis and shaped the current British commercial and business enterprise scene (Hodson and Mabbett, 2009, pp. 10411061). These factors are making a huge influence on the public now, either at national or individual level. downstairs such circumstances, Britain tends to cut government use to repay debt rather than urinate inflation. In terms of the latest data from the Office for National Statistics, the British economy is picking up by 0.2% and confidence of con resumeers is being amend.Th is experiment entrust contain two main parts. The first part aims to crumble an overview of the British economy has been affected by the financial crisis on the pursual aspects. They are coin devaluation, housing and mortgage commercialise bubble as well as the participation form _or_ system of government. In the second part, this essay will demonst prescribe the consequences of these aspects and efforts contributing to the British economic recovery, especially for employment policy. For a better lowstanding, efforts and consequences will follow behind by introducing the three aspects. premiere of all, devaluation is a natural process in financial markets. All currencies reciprocation rates will rise or fall based on the international situation and the states financial condition. Assume 5 British pounds were able to buy 10 U.S. dollars years ago, today the pound could be adulterate and its purchasing power would only be enough to buy 7 dollars. Compared with the devaluati on of the market, governments around the world sometimes use devaluation as a respite tool to protect their trade wind. For instance, the country could benefit from the lower terms of its exportingation of goods if the currency is devaluated. Meanwhile, the lower currency value encourages exports and discourages imports, which could improve trade deficit and imbalances for the country. So far, the sharp depreciation of sterling in 2008 was non callable to naturally devaluation process but by the true power-driven, the global financial crisis (Broadbent, 2011).In addition, trade proceeding of the UK since financial crisis in 2008 has been part of an subjective schoolings in the British economy. Despite a fact that extensive depreciation in the value of sterling, which should have enhanced the UKs competitiveness theoretically, the performance of UK trade has remained relatively stable (Hardie et al., 2003). As quite a little be observe in the figure 1, there was a massi ve depreciation from 2007 to 2008 and the trade deficit stayed open. At the aforesaid(prenominal) time, import costs went up by a fairly large amount as well as export prices according to the figure 2. Which is not coherence with economic theory that currency depreciation encourages exports and discourages imports.Figure 1 Sterling effective step in rate and balance of UK tradeFigure 2 Sterling effective exchange rate index and UK import and export price indicesFigure 3 Earnings against inflationMoreover, the reason for why there was a large depreciation of sterling during 2007 and 2009 is be hunting expedition the value of the sterling is tied up with the price and turnover of financial assets in the City of London. While, the UK does not contribute to the same position as America, which has the Worlds reserve currency. And hence when asset prices took the hardest hit in 2007-2008, the sterling did as well. This phenomenon demonstrates the sensitivity of the sterling that might occur in the financial markets. Furthermore, based on figure 3, the consequences of sterling depreciation take in a dramatic decline with earnings growth from around 4.5 per penny in 2007 to just above 1 per cent in 2009, point though the price inflation decrease during 2008. Forecast could be do from the data that banals of living quality for British people fall markedly (Hardie et al., 2003).The second impact by the 2007-2008 global financial crisis within the British economy is housing and mortgage market bubble. The Royal Institute of chartered Surveyors (2010) point out that the housing market is p rateing an essential eccentric in UK economic activity, and there was a high owner- crease rate stood at 68% in 2010 (Niklewski et al., 2013, PP. 518530). However, the financial crisis associated with the credit crunch means that the UK market faced a pop the questiond conundrum relating to the housing and mortgage market. prior to the financial crash, borrowers were in a p osition to finance at least 95% of the purchase price using mortgage debt (Niklewski et al., 2013, PP. 518530). By contrast, banks withdrew the bulk of these offers after crash, and many summationd the required down-payment from the historical average of 10 percent to 25 percent (Niklewski et al., 2013, PP. 518530). The British Banking Association (2013) indicates that house purchases sum reduced from almost 12 billion in November 2006 to around 2000 in November 2008. Prima facie this had modify slightly to 4550 gazillion by July 2012, but this was still below the historical average. In terms of credit becomes more promptly available eventually, the housing market still performs unlikely to revert to pre-crisis levels. Hence, the UK Financial Services Authority (FSA) placed proposals to a greater formal bulwark on mortgage lending. The Council of Mortgage lenders suggested that the implementation of these proposed restrictions could see intravenous feeding million fewer mortg ages in the United Kingdom over the subsequent four years (Niklewski et al., 2013, PP. 518530).Finally, international financial crisis start outd serious problems on the status of British employment. And the National Bureau of Statistics report shows that by October 2008, there were more than 150,000 stage businesss to be cut. Thus, UK supposeless claims have increase by 257,500. Moreover, the British company lay off up to 38,588 people mainly due to high cost and low demand during the preceding three months.Under such situations, the British government had taken a number of steps to slow the further development of expanding unemployment and helped to recover the British economy to some certain extent. This could be split into two points. The first one is to encourage employment directly. And there are four policies will be presented at this point. Policy one at least 100,000 new jobs were established through al-Qaida projects. The British government implemented a total of 10 bi llion for infrastructure investment plans in 2009, including education, transportation and other infrastructure projects in hostel to create at least 100,000 additional jobs. This measure was appropriate to provide a large number of jobs for British workers, reducing the unemployment rate as well as promoting the improvement of infrastructure. This has encouraged the development of economy and city construction in the long run. However, the biggest problem is the huge pressure for fiscal policy of expenditure, which may lead to British citizens tax burden in the future.The second policy was for women were received training allowance for re-employment. This policy had improved the housewife job enthusiasm to some significant extent, and it relieved the economic pressure due to decrease income by husband unemployment also promoted the waken ratio of the employment market equilibrium. However, this policy has intensified competition among job markets, the employment situation will d eteriorate further, and the effect may variegate from the original purposes. Policy three was the National Program to promote the employment of university students. Based on the view of the great employment pressure, the British government launched a National Program in 2009, helped the college students who were failed to take on a job to get an internship in enterprise or other organizations, improving their occupation and comprehensive quality by skill training (White Paper, 2011). Then, reach the intent for the final realization of employment. This policy increased the quantity and quality of employment. At the same time, because of financial crisis, British unemployment rate for young people under the age of 25 continues to increase. Hence, the British government introduced a number of young employment measures for 18 to 24 years old people, to help them find work or study, where can improve their employment skills (White Paper, 2011). The positive effect of this policy is ob vious. For instance, recent figures from the Office for National Statistics show that about 30 million people were in work at the end of 2012, an increase of 154000 on the quarter to September, which is the most obvious improvement since 2007 (King, 2013)The last policy was restricting immigration. The British government started to increase the difficulty of immigrants in October 2008 (GOV.UK, 2014), and moderate the number of British immigrants to the open jobs. This policy has reduced the British resident physician employment pressure to a certain extent, but it will cause hatred between the British and foreign immigrants, which may lead to the problem of racial discrimination. Meanwhile, this policy made life more difficult for immigrating people who have already lived in the UK. Therefore, government had to increase fiscal expenditure on their housing and daily expenses. Which was also made the foreign immigrants cannot film in some work that British people do not want to eng age in, it may hinder the British economic development to some extent.The second point was to pay a subsidy to the inactive class, and this will be introduced by three policies. The first one was using up 50 million to help the discharged people. In order to jar the impact of the economic recession, the British government planned to apply for a package of measures to help the long-term jobless workers back to the positions in the conterminous two years since April 2009. Spending on this plan was around 50million, which including stipendiary compensation to the company to hiring workers who are unemployed for more than six months. These measures improved the re-employed workers skills and promoted the employment rate. However, paying subsidy to jobless people may cause ethical risks of enterprises. Because of obtain the compensation payment from the government, enterprises may take forbid training even repeat its layoffs behavior, which leads to the re-employment rights and in terests cannot be ensured.The second policy was that an unemployed worker could delay the mortgage interest payments up to 2 years. The British government provided guarantees to lenders, allowing those property buyers who lost their jobs and income appear serious decline can delay the mortgage interest payments up to 2 years. It helps to prevent the inattention risk on interest payment. If this policy is implemented, buyers can afford the periodic repayment, the risk of default will be reduced. Also, it helps the buyers overcome the current financial crisis smoothly. Nevertheless, there is no accurate calculation on the cost of defective loan guarantee provided by the government. If the cost is quite high, the reachable and feasibility of the reformed policy are still far from satisfactory. At the same time, the Bank of England offers loan, if the government is responsible for guaranteeing costs, the liquidity will become worse, which may lead to continuing market turmoil.The fi nal policy was raising the minimal salary standard. The British government raised the tokenish wage standards in the late 2008. However, it was obvious to see the dual characters of this policy during the recession. On the one hand, there is an undeniable fact that an increase in the minimum wage will increase income of workers living at the bottom of society relatively, which corroborate their basic livelihood security and maintain their basic living standard for low income groups. It serves to sustain the stability of British society. On the other hand, minimum wage standards will also increase the labor cost of enterprises directly. The increased burden would have a shun effect on employing workers, and cause the amount of jobless people increase, which deteriorates the employment environment. Even bring negative effect on the British economic recovery.