Business and Finance Economics essay

The economic recession and financial crisis have had a considerable impact on the UK economy, which the UK cannot have fully recovered yet. In fact, the UK economy is still stumbling, although the steep decline has been stopped. In such a situation, macroeconomic policies conducted by the government are essential for the prevention of negative effects of the economic recession and financial crisis and faster recovery of the UK economy. At the same time, it is important for the government to take effective steps that can minimize the risk of the further deterioration of the economic and financial situation in the country. The financial and economic stabilization should be the primary concerns of the government that can help the UK economy to recover faster. In this regard, the macroeconomic stabilization is crucial and should include the stabilization in the GDP growth, inflation rate, and unemployment rate because the stable GDP growth, the low inflation rate and the low unemployment rate are key macroeconomic factors that contribute to the recovery of the UK economy.

On analyzing the economic recession in the UK, it is important to place emphasis on the fact that the UK faced a considerable downturn in the economic development, which was closely related to the financial crisis and the deterioration of the situation in the housing market of the UK.

At the same time, the economic recession in the UK was closely related to the economic recession in the US, where the crisis in the housing market deteriorated the situation considerably. At the same time, the major effects of the economic recession in the UK were the growing inflation rate, the growing trend of the British to saving, the deterioration in the housing market, the growing unemployment rate and the drop of the GDP growth. In such a situation, one of the major challenges to the UK economy was the slowdown of the economic growth. In fact, faced with falling house prices, significant reductions in the value of pensions and other assets, a deteriorating and uncertain employment outlook, consumers are likely to retrench spending to reduce debt and rebuild savings (Latham and Braun, 2008). These steps are essential for the recovery of the UK economy. In this regard, the UK government should cope with the major challenges to the UK economy at the macroeconomic level. The growing inflation rate and unemployment rate raise a number of socioeconomic problems, which the government has to tackle. In such a situation, distressed consumers may prefer to save and pay down debt and businesses are in no mood or position to invest, so continued expansionary fiscal and monetary policy will be necessary to underpin demand (Latham and Braun, 2008). The growth of saving and the decrease of spending aggravates the situation in the UK economy, although the financial crisis has a particularly negative impact on the UK economy because it prevents the UK economy from the fast recovery.

In such a situation, the UK government and the central bank of the UK have undertaken bold steps to stabilize macroeconomic environment in the UK since the beginning of the economic recession. The increase of the money mass in the UK economy through lending UKP 200 billion to British banks was one of the major steps undertaken in the UK to stabilize the financial situation. However, this step provoked the rise of the inflation rate in the UK because the rise of the money mass was not backed up by the respective rise in the production of goods and services.

At the same time, the UK government has developed the plan of the economic recovery that could bring positive effects on the UK economy and improve the macroeconomic environment in the UK. The British plan, combining injections of liquidity into the market and guarantees to encourage banks to start lending to each other again (Elekdag, Justiniano, Tchakarov, 2006). In such a situation, the revival of the UK economy and stimulation of business activities could outweigh risks of the growing inflation rate. The growth of liquidity could stimulate the UK banks to offer loans at better conditions, while their customers could borrow money and spend them faster and more effectively, investing their money into their business development. In such a way, the UK could stimulate the rise of business activities that could help to increase the GDP and to decrease the unemployment rate. In such a context, the plan of tackling the insolvency problem, through liquidity injections, tackling the funding problems, through capitalization and tackling the confidence problem, through wholesale guarantees could be quite effective (Ngian, 2002). In fact, this plan brought partially the stabilization to the macroeconomic situation in the UK. However, the financial stabilization through liquidity injection raised the problem of the public debt that has grown since the beginning of the economic recession in the UK.

In such a context, the UK government has to undertake further steps to prevent negative effects of the economic recession. The UK government should carry on monetary policies that help the UK to stabilize the financial situation in the country and take control over the inflation rate and the GDP growth. In addition, the government should encourage the revival of business activities. In this regard, monetary policies alone may be not enough and fiscal changes may be needed to stimulate business activities in the UK. The change in fiscal policies is essential for the macroeconomic stabilization in the UK because the increase of liquidity and the support of the bank industry in the UK as well as the wider regulation and support of the economy by the government raised the problem of the growing public debt and budget deficit in the UK. Therefore, the UK government should increase revenues of the budget and cut spending to fund its stabilization plan.

Therefore, monetary policies of the UK contributed to the stabilization of the situation in the UK economy but they were insufficient for the overall recovery of the national economy. At any rate, the stability of the macroeconomic situation in the UK is still uncertain. The government attempted to support large banks and financial institutions but, at the same time, the government increased the money mass that increased the risk of the high inflation. The inflation rate has grown considerably since 2008, especially compared to the pre-recession years (Ngian, 2002). Therefore, the government should enhance its efforts to reach the macroeconomic stability. In this regard, the government should work in several key directions. First of all, the UK government should focus on the creation of new jobs or, at least, the government should motivate business to create new jobs. In this regard, the government can either offer public jobs for unemployed or stimulate business to employ unemployed professionals. The latter means the rise of business activities. As for the public jobs, the government can invest available funds in the development and improvement of the national infrastructure and employ individuals, who are unemployed at the moment. In such a way, the government will cut the unemployment rate, on the one hand, and create favorable conditions for business development, on the other. The government can also stimulate business activities that will create new jobs through its fiscal system. For instance, the government can introduce tax credits for businesses creating new jobs or the government can facilitate the procedure of starting business in the UK. In such a way, the government will encourage business activities that will help to solve the problem of the unemployment. At the same time, the solution of the problem of unemployment will help to solve the problem of the growing inflation rate. At any rate, the decrease of the unemployment rate will stimulate consumption because people will have jobs and they will be certain in their future. In addition, they can take bank loans due to the government support of banks. Therefore, people can start spending more than they do at the moment because their certainty in their job and money available from banks allow them to increase their spending. The rise in spending will be closely intertwined with the rise in the production of goods and services for new jobs and businesses will create more products and services. Hence, the production will increase and so will GDP of the UK.

Thus, the UK government has focused on the macroeconomic stabilization as one of the major strategies that aim at the prevention of the negative effects of the recession. These policies have proved to be partially effective but not sufficient to contribute to the overall recovery of the UK economy from the economic recession and financial crisis. Nevertheless, the measures undertaken by the UK laid the foundation on the ground of which the government can continue its policy aiming at the recovery of the national economy. In this regard, the UK government should change its fiscal policies to enhance the macroeconomic stability in the UK. The government’s monetary policies were effective but they did not prevent the further decline of the UK economy and the monetary policies conducted by the government need back up from private investors as well as in terms of fiscal policies. In fact, monetary policies conducted by the UK government need substantial financial resources but the national budget’s revenues declined because of the economic recession and the government needs to find new sources to increase revenues of the budget and decrease its deficit to fund its anti-crisis programs and to help the UK economy to recover faster.