Introduction
In 2008-2009, a large portion of the world’s economies were hit by the Great Recession. The global economy suffered from a sharp and synchronized downturn that continued until 2013. The recession began with the global credit crunch which led to a long period of low growth and increased unemployment. The main reason behind the recession was the reliance of these economies on the fragile financial system and unbridled banking system.
The period of 2000-2007 was a time of strong economic growth, low inflation and low unemployment. The housing bubble caused a rapid growth in housing prices that increased faster than inflation and incomes of the public. In the United States, banks increased lending which in turn increased confidence …show more content…
In the entire year of 2008, an expansionary fiscal policy was established. The government provided a basic tax cut of £145 to those who earned below below £34,800. Also, the government temporarily reduced the Value Added Tax (Sales Tax) by 2.5%. Many investment projects were implemented that had a combined worth of £3 Billion and other fiscal measures were also introduced such as the £20 billion Small Enterprise Loan Guarantee Scheme.
As for the monetary policy, the Bank of England’s Monetary Policy Committee (MPC) Cut the interest rate from 5% to 0.5% which made borrowing cheaper and encouraged further investment and consumption. This was the lowest it had been in the 300 year history of the United Kingdom. A process known as quantitative easing was also employed to inject money directly into the economy.
As a result of these policies, the economy grew by 0.7% in the 4th Qtr of 2009, when consumption increased. In the 2nd quarter of 2010, there showed a promising growth when the construction sector performed very well with 1.1% increase. The overall spending increased and savings reduced. Although the policies were effective in bringing the intended result, the recession had put banks, firms, and consumers into high debt. Also, the low interest rates did not have the effect the Bank of England wanted because the commercial banks did not cut their rates and as a result credit remained tight even though it was
In 2008-2009, a large portion of the world’s economies were hit by the Great Recession. The global economy suffered from a sharp and synchronized downturn that continued until 2013. The recession began with the global credit crunch which led to a long period of low growth and increased unemployment. The main reason behind the recession was the reliance of these economies on the fragile financial system and unbridled banking system.
The period of 2000-2007 was a time of strong economic growth, low inflation and low unemployment. The housing bubble caused a rapid growth in housing prices that increased faster than inflation and incomes of the public. In the United States, banks increased lending which in turn increased confidence …show more content…
In the entire year of 2008, an expansionary fiscal policy was established. The government provided a basic tax cut of £145 to those who earned below below £34,800. Also, the government temporarily reduced the Value Added Tax (Sales Tax) by 2.5%. Many investment projects were implemented that had a combined worth of £3 Billion and other fiscal measures were also introduced such as the £20 billion Small Enterprise Loan Guarantee Scheme.
As for the monetary policy, the Bank of England’s Monetary Policy Committee (MPC) Cut the interest rate from 5% to 0.5% which made borrowing cheaper and encouraged further investment and consumption. This was the lowest it had been in the 300 year history of the United Kingdom. A process known as quantitative easing was also employed to inject money directly into the economy.
As a result of these policies, the economy grew by 0.7% in the 4th Qtr of 2009, when consumption increased. In the 2nd quarter of 2010, there showed a promising growth when the construction sector performed very well with 1.1% increase. The overall spending increased and savings reduced. Although the policies were effective in bringing the intended result, the recession had put banks, firms, and consumers into high debt. Also, the low interest rates did not have the effect the Bank of England wanted because the commercial banks did not cut their rates and as a result credit remained tight even though it was