Economic Policy of the United Kingdom in the crisis of 2008-2010 - Реферат

Economic Policy of the United Kingdom in the crisis of 2008-2010 Scientific Paper Abstract The global financial and economic crisis of 2008-2010 affected all countries around the world plunging the UK into one of its deepest recession since World War II. The purpose of this paper is to analyze monetary and fiscal policies undertaken by the UK during the crisis. The central argument is that the British government implemented the combination of aggressive expansionary monetary policy and decretive fiscal stimulus to mitigate the crisis. The research was undertaken based on the Internet date of international, European and British institutions as well as research papers of renowned think tanks and scholars in this field. The scientific and deductive methods were used. Key findings demonstrated that the government targeted its efforts at addressing system wide instability, tackling problems in individual institutions and getting credit flowing through the economy. In international comparisons, the United Kingdom has spent the greatest amount on banking sector stabilization. Bail out measures included bank recapitalization, credit guarantees, state ownership of endangered banks, deposit guarantees and swaps of illiquid assets with the Bank of England. In addition to drastically cutting interest rates the Central Bank had to utilize quantitative easing to stimulate the economy. The seriousness of the situation and ineffectiveness of automatic stabilizers prompted the government also to use discretionary fiscal tools that included support for household consumption, private investment, labour market adjustment and public investment. The research indicated the shift towards a more Keynesian paradigm of fiscal policy as more than half of fiscal stimulus went on supporting household consumption. Introduction global financial economic crisis The financial crisis that started in 2007 and turned into an economic recession in 2008 was considered to be the worst since the Great Depression of the 1930s. Globally reduced access to credit, higher lending rates, falling asset prices and a weakening of economic growth rates have all been linked to the so called ‘credit crunch’. Growing losses on portfolios linked to the troubled US sub-prime mortgages market have triggered a series of investment write-offs, general loss of confidence and increased uncertainty in the financial services sector. It was no surprise, that the United Kingdom - a home to some of the most sophisticated financial markets in the world - was particularly hard hit by the crisis. A great amount of articles has already been written on this topic, but the central argument of this scientific paper is to provide a concise explanation of the magnitude of the crisis in the United Kingdom with a focus and in-depth analysis and assessment of various monetary and fiscal policy instruments undertaken during the recession. It also highlights the transmission mechanisms from financial instability to weaker economic growth and provides with some degree of forecast regarding the direction in which the UK economy is headed. Between 2008 and 2010, which are the years of this study, the UK government and the Bank of England used a combination of expansionary monetary policy and discretionary fiscal stimulus to respond to the crisis. In terms of the monetary policy and bail out for banks, the authors of this paper aimed at responding in the Discussion Part of the study to the following questions: · How important is the financial sector for the UK economy and what steps did the government take in order to save financial institutions from collapse? · What was the role of the Bank of England and how the change of interest rates has helped businesses and households to survive the recession? · How did the change of the interest rates and Quantitive Easing impact the inflation and employment levels? The paper highlights the importance of coordination of the government and the Bank of England. Therefore, after having reviewed the monetary policy instruments, the authors also analyzed the fiscal policy undertaken by the government and evaluate its effectiveness in dealing with the consequences of the crisis. With regards to the fiscal policy, the paper answers the following questions: · Why did the automatic stabilizers not work during this crisis? · Which particular discretionary fiscal tools did the government use? · How did the government help to increase aggregated demand and who benefited from the fiscal stimulus package? · Were there any shifts in fiscal policy paradigm in response to the crisis? Materials and Methods The research was done on the basis of the Internet data from various economic resources. Statistical and quantative data was elicited from such organizations as Eurostat, European Commission, IMF, International Labor Organization, the UK Office for the National Statistics and Bank of England. Research papers on financial and economic crisis of prominent think tank