Economic growth is one factor used by economists to measure the strength of an economy. The definition of economic growth is an increase in the amount of goods and services produced per person within a country’s population over a period of time, and is the annual change in real GDP. This means that there are more goods and services being produced, which comes hand-in-hand with lower unemployment rates as more jobs are created and filled. The UK has seen its economic growth rise and fall, with a prime example of poor economic growth being in 2008 to 2009 when the economic growth declined and the country entered a recession. The growth of Gross Domestic Product went from a percentage growth of 2% in late 2007 to a percentage decline of 6% at the start of 2009, with average house prices falling from £185000 to £150000 in the same year. Since the end of the recession, the UK has seen GDP figures rise once again and, although not quickly, the economy has recovered after the recession, with average house prices at around £195000. Prices of houses are a very good measure of an economy’s strength, and steady economic growth has caused house prices in the UK to surpass pre-recession figures. This shows that the UK economy has performed well because it has been able to recover and improve its economy since the end of the recession.
Another government policy objective used to evaluate the performance of an economy is inflation. Inflation is the rate of change of average prices in an economy, and typically governments want low rates of inflation, which remain stable, but do not quite fall to zero. If inflation occurs, general price levels rise and this is generally seen as bad as you cannot buy as much with your money, whereas deflation is the fall in general price levels, which is considered to be a good indicator of strong economic performance, although deflation is only preferable to get back down to the government’s target of 2% +/- 1%. Inflation rates are measured by the percentage change in the Consumer Price Index (CPI), which is basically a measure of how much people are ‘consuming’ or buying. During the recession of 2008, inflation was up to just over 5%, and in 2011 it spiked again rising to 4.5%. This suggests that maybe the UK economy did not perform well in the short term after the recession because inflation still remained very high, even after two years. On the other hand, there was deflation in the economy, and in 2015, inflation rates were at 0%. This shows that, in the long term, the UK economy has performed very well since the recession, managing to successfully bring back down inflation rates within the country. Also, the banks’ interest rates in the country since 2014 have been very similar to the rates of inflation, which shows that the UK economy has managed to achieve a sense of stability, which is something that very strongly indicates the strength of an economy, again showing how well the economy has managed since the recession.
Unemployment rates are another government policy objective that can be used to show how the UK economy performed since the end of the recession. People who are out of employment yet are able to work are considered as a waste of valuable resources which are limited, so this unused labour is labelled as ‘scarce.’ As a result, high unemployment shows that an economy is weak as they are wasting scarce talent in the form of labour. The lowest possible unemployment levels in the UK are considered to be around 3% as there will always be people (sick, disabled, elderly and youths) who cannot or do not work for good reasons, but the government aims to keep their unemployment figure as close to this number as possible. During the recession of 2008, unemployment rose quickly to 8%, and this figure remained high, peaking in 2011 at 8.1%, which linked to poor economic growth within the country. This shows that, even three years after the recession, the UK economy was performing poorly, with unemployment rates rising by 0.1% in 2011. Despite this, unemployment slowly began to fall again from 2012 until 2015 where it was at 5.4%, and has fallen by a little bit more since. These figures show that the UK’s initial response to the recession ending was poor and sluggish, but in the long term, the country has performed well in lowering unemployment to the present day, and is now considered to have one of the better economies in the world when looking at unemployment figures.
The UK has slowly recovered since the end of the recession on most fronts, including its falling unemployment rates, low inflation levels and relative economic stability. On the other hand, the UK’s rising budget balance and balance of payments deficits suggest that the economy has performed rather poorly since the recession. Overall, though, the UK economy has performed particularly well since the recession, with some of the strongest economic growth rates across the globe and extremely low inflation and unemployment compared to most other countries, managing to retain its title on the economic stage as one of the strongest economies.
Original image by Lewis Bushell