UK Unemployment Stats and Graphs

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A selection of graphs and statistics on UK unemployment. Also, looking at factors that explain UK unemployment and why unemployment has fallen in recent years. Raw data:  Labour market data | Source: ONS MGSX (LFS) Current UK Unemployment rate An unemployment rate of 3.8%, (Dec 2019) –  (UK Unemployment at ONS) The UK employment rate …

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UK Inflation Rate and Graphs

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Current UK Inflation Rate

  • CPI inflation rate:  1.5% (headline rate) CPI – D7G7 at ONS
  • (page updated 18 Dec 2019)

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Other measures of inflation

  • (CPIH) CPI including owner occupiers’ housing costs – 1.5% (CPIH – L550)
  • RPI – 2.2% (Dec 2019)
  • See: Measures of inflation

Cost-push inflationary factors

In 2017, the UK saw a rise in cost-push inflationary pressures. This caused a spike in inflation, despite relatively weak economic growth. Cost-push inflationary factors have come from:

  • Devaluation in Sterling. This makes imports more expensive and has fed through into higher input prices for manufacturers.
  • Rise in petrol prices in the early part of 2017.
  • Rise in food and recreational goods.

In 2018/19, these cost-push factors have fallen away and weak economic growth has kept inflation below target.

Reasons for low inflation in the UK

  • Low worldwide inflationary expectations. Europe is experiencing very low rates of inflation.
  • Fall in global inflation rates since 2007.
  • Supermarket price wars, with big chains, such as Tesco and Sainsbury attempting to maintain market share from Pound Shops and discounters like Lidl.
  • Weaker commodity price growth.
  • Fiscal austerity – many government departments still seeing spending squeezed. In particular public sector pay restraint of recent years has reduced real wages for public sector workers.
  • Private sector wage growth is still weak. This has limited costs of firms and limited growth in aggregate demand.
  • A potential negative output gap, with real GDP still around 10-15% below pre-crisis trend rate.

Inflation trends in the UK

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Despite temporary cost-push inflationary factors in 2017, underlying inflationary pressures remain muted – at least compared to the past four decades.

The current UK inflation rate compares favourably to much of the post-war period.

1970s Inflation

The 1970s frequently saw double-digit inflation. This was due

  • Cost-push factors – rapid rise in oil prices
  • Rising wages due to powerful trade unions trying to keep up with living costs.
  • Lack of independent monetary policy
  • Inflation expectations rose

Late 1980s inflation

The inflation of the late 1980s was due to

  • Rapid economic growth ‘The Lawson Boom‘ – growth was above the trend rate causing supply shortages
  • Rise in house prices fuelling wealth effect
  • Lack of independent monetary policy. Policy was partly set by ‘shadowing the D-Mark’ which led to loose monetary policy in late 1980s

Inflation and wages

  • Real wages = nominal wages – inflation.
  • Usually, during a period of economic growth – wage growth is higher than inflation, this leads to positive real wage growth.
  • During the economic recession of 2009-13 – we had a prolonged period of negative real wage growth. Wages rising at a slower rate than inflation.
  • The end of 2014 saw the first signs of renewed wage growth and positive real wage growth.

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In 2017/18, the trend of negative real wage growth resumed.

However, since 2018, wages have started to creep up whilst inflation has fallen.

See more at UK wage growth

Inflation since 1990

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  • Inflation rose over 8% in the late 1980s due to the Lawson boom, which was a period of unsustainable economic growth.
  • Inflation was low in the period 1992 to 2007. This was a period known as the ‘great moderation’
  • The inflation of 2008 and 2012 was due to cost-push factors (devaluation and rising commodity prices)

Read moreUK Inflation Rate and Graphs

Key measures of economic performance

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Traditionally, the key measures of economic performance in macroeconomics include: Economic growth – real GDP growth. Inflation – e.g. target CPI inflation of 2% Unemployment – target of full employment Current account – satisfactory current account, e.g. low deficit. Other measures of economic performance can include: Government borrowing/national debt Real disposable incomes Income inequality (Gini …

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Examples and Types of Protectionism

A list of some modern-day protectionist measures, including tariffs, domestic subsidies to exporters, and non-tariff barriers which restrict imports. Types of Protectionism Tariffs  – This is a tax on imports. Quotas – This is a physical limit on the quantity of imports Embargoes – This is a total ban on a good, this may be …

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Effect of lower interest rates

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A look at the economic effects of a cut in interest rates.

Summary

Lower interest rates make it cheaper to borrow. This tends to encourage spending and investment. This leads to higher aggregate demand (AD) and economic growth. This increase in AD may also cause inflationary pressures.

In theory, lower interest rates will:

  • Reduce the incentive to save. Lower interest rates give a smaller return from saving. This lower incentive to save will encourage consumers to spend rather than hold onto money.
  • Cheaper borrowing costs. Lower interest rates make the cost of borrowing cheaper. It will encourage consumers and firms to take out loans to finance greater spending and investment.
  • Lower mortgage interest payments. A fall in interest rates will reduce the monthly cost of mortgage repayments. This will leave householders with more disposable income and should cause a rise in consumer spending.
  • Rising asset prices. Lower interest rates make it more attractive to buy assets such as housing. This will cause a rise in house prices and therefore rise in wealth. Increased wealth will also encourage consumer spending as confidence will be higher. (wealth effect)
  • Depreciation in the exchange rate. If the UK reduce interest rates,  it makes it relatively less attractive to save money in the UK (you would get a better rate of return in another country). Therefore there will be less demand for the Pound Sterling causing a fall in its value. A fall in the exchange rate makes UK exports more competitive and imports more expensive. This also helps to increase aggregate demand.

Overall, lower interest rates should cause a rise in Aggregate Demand (AD) = C + I + G + X – M. Lower interest rates help increase (C), (I) and (X-M)

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UK interest rates

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UK interest rates were cut in 2009 to try and increase economic growth after the recession of 2008/09, but the effect was limited by the difficult economic circumstances and the after-effects of the global credit crunch.

AD/AS diagram showing effect of a cut in interest rates

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If lower interest rates cause a rise in AD, then it will lead to an increase in real GDP (higher rate of economic growth) and an increase in the inflation rate.

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Economic Growth UK

Economic growth measures the change in real GDP (national income adjusted for inflation; ONS call it chained volume measure of GDP) Since the end of the great recession (2008 – 2009) the UK economy has grown in fits and starts. It has been a relatively weak economic recovery compared to previous recessions. 2019 has seen …

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Examples of elasticity

Price elasticity of demand measures the responsiveness of demand to a change in price. Price inelastic – a change in price causes a smaller % change in demand. Price elastic – a change in price causes a bigger % change in demand. Price inelastic demand We say a good is price inelastic, when an increase …

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The effect of a current account surplus

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Readers Question: how does a current account surplus affect domestic employment? A current account surplus means an economy is exporting a greater value of goods and services than it is importing. A country with a current account surplus will have a deficit on the financial/capital account. i.e. a country with a current account surplus will …

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