Cyclical Economic Activity

Readers Question To what Extent is economic activity cyclical?

In our previous post – To what extent is Phillips Curve still relevant? we looked at whether there is a trade off between inflation and unemployment. This trade off seems to occur when we have boom and bust cycles suggesting a trade off between growth and inflation. However, in recent years the trade off appears to have become less noticeable causing some to suggest the economy was becoming less subject to cyclical boom and busts.

In the UK, economic activity has had a history of boom and bust economic cycles. Periods of high growth followed by a downturn or recession. For example, we had recessions in 1974, 1981, 1991.

After the 1991 recession, we experienced a long period of economic expansion in which many hoped that the boom and bust cycle had been broken. From 1991 to 2007, we had a period of steady economic growth and low inflation. However, this apparent stability masked a boom and bust in house prices and credit. The credit boom and subsequent crunch caused the current recession and showed the economy is still subject to certain cyclical patterns.

Cyclical economic activity in many different statistics from  housing equity withdrawal, unemployment,  consumer spending and economic growth.