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Managing the British Economy Between 1997 and 2010 Essay

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Updated: Dec 26th, 2021

The overall output of an economy is used to measure the economic growth and well-being of any given economy. This is determined by assessing the total output which is generated from all the possible sources. Through this, a Gross Domestic Product ratio is used as the determinant of how the economy is doing with regard to import and export through the balance of payment and balance of trade.

The performance of the Labour Government and the Bank of England in managing the British economy over the past decade has been marked with mixed economic variations which have sometimes favoured and impeded their performance. The main objective of the Labour government has been to create viable economic growth. For a very long period of time, the Gross Domestic Product has been increasing at a stable rate. In evaluating the economic performance of the Labour Government and the Bank of England, it is imperative to consider some of the factors like the volume of spending by consumers and rate of employment as key factors which determine the growth of the economy.

Additionally, the Labour Government has been working towards increasing the volume of export in order to improve the Balance of Payments. By so doing, both individual and corporate investors have felt a sense of security even as they invest in various undertakings. Consequently, the increase in an investment portfolio has led to more employment opportunities being generated both from the private and public sectors.

Moreover, the Labour Government has been trying to reduce the chances of the U.K economy overheating as a result of excessive growth within a very limited period of time. One line of action which the Labour Government has taken is increasing the interest rates. In so doing, spending is substantially reduced and the economic growth is equally retarded. If this measure is not taken, then the possibility of an economy suffering from acute recession is rife.

Another important factor that the Labour Government and the Bank of England have keenly monitored is the Demand-Pull Inflation. When resources are fully in use, the Demand-Pull Inflation factor is usually in full operation. When demand is high, the price will proportionately go up while at the same time, no significant output will be realised. Such an economic situation may easily adjust itself to inflation. On this note, it is imperative to note that the UK economy has been boosted by Aggregate Demand especially since 1997 (University of Edinburgh 2006). One of the elements which have heightened aggregate demand is heavy spending which has resulted from easy access to credit facilities (Kollewe, 2010).

While skirting the demand factor, we cannot afford to ignore the significant role played by supply which is necessary for counterchecking the excesses of demand without leading to inflation. This is one area of caution which the Labour Government and the Bank of England have been watching keenly. The interpretation here is that the growth in the supply of a country largely implies that the production level is high and that investments can be carried out with much ease. The Labour government has categorically favoured the supply side of the economy which has witnessed more resources being allocated to improve human capital through labour and education (Economy Watch 2010).

Additionally, the government has substantially increased its expenditure on both machinery and technological development; as these have been found to be major accelerators to the current UK economy. The chart below shows that the Labour Government has maintained a viable economy since it took over power with stable economic growth (RP 2010)

The Labour Government has maintained a viable economy
Figure 1. The Labour Government has maintained a viable economy

The graph indicates that the Labour Government has managed to sustain a viable economy over a considerable length of time. The left side of the chart depicts the recession period which occurred at the beginning of the last decade to the new millennium. The negative economic performance is shown below the red line (Swan, 2010).

Nevertheless, throughout the period from 1997, the government has regulated the economy to favour positive growth. The re-election of the Labour Government in 1997 indicates that the economy has gone negligibly gone down by a meagre 3 percent but keeping inflation at bay. This is by no doubt a sterling economic performance in a period of fourteen years (Ferguson, 2004). This has also been depicted as the longest session of steady economic performance in the United Kingdom.

Further, the rate of economic growth has been sustained within a favourable boundary of 3 percent within a margin of 1.5 percent. This implies that the UK economy has been one of the most peaceful among the developed economies.

In order to create a more valid evaluation of how the Labour Government and the Bank of England have run the UK economy, there is a need to compare and contrast its performance with other equal players in the global economy. The graph below shows a comparative analysis of the UK economy with other European nations. It is evident that the Labour Government has managed to sustain a less volatile economic growth as can be seen from the peaks and troughs as compared to other sister economies within continental Europe (RP 2010)

 Comparative analysis of the UK economy with other European nations
Figure 2. Comparative analysis of the UK economy with other European nations

Additionally, this is a similar scenario with the rest of the world economies.

References

  1. Economy Watch (2010). UK Economic Forecast UK Economy 2010.
  2. Ferguson, N(2004). Empire, The rise and demise of the British world order and the lessons for global power. Basic Books.
  3. Kollewe J (2010). Web.
  4. RP (2010). Economic Growth – UK Economy Under Labour.
  5. Swan A (2010). Opening up research could boost UK economy.
  6. University of Edinburgh, (2006). . Web.
  7. Office of National Statistics – UK Output, Income and Expenditure
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