Effect of the Financial Crisis on the British Economy

Effect of the Financial Crisis on the British EconomyTo what extent has Britain been affected by the monetary crisis and what efforts contribute to recovery of the British thriftiness?The worldwide financial crisis of 2007-2008 almost brought down the global financial system. The fundamental cause agreed broadly was the combination of credit and the housing babble resound (Acharya and Richardson, 2009). Most deal are placed on the analogous side of credit ranking relaxing area however, the question may be increase that why the housing bubble would bring the financial system instead of having an number on just on the housing sector of the economy. The answer is delegate to the bankers and regulators on the Wall Street. In this global economic crisis, banks had shirked regulatory superior requirements with the temporarily placed pluss increasing and the reduction on the number of holding capital requirement allowed by the regulators.The financial crisis began to unwrap of con trol after September 2008 and led to a number of clean large financial institutions bankrupt or takeover by governments. As a financial industry and service oriented country, although Britain has a smaller size of economies of scale than America, financial industry accounted for a greater proportion of the national economy, the real estate market existing bubble as well. Therefore, the British economy suffered a massive hit by the crisis and shaped the current British commercial and business scene (Hodson and Mabbett, 2009, pp. 10411061). These factors are making a huge influence on the public now, either at national or individual level. Under such circumstances, Britain tends to cut government expenditure to repay debt rather than cause inflation. In terms of the latest data from the lieu for National Statistics, the British economy is picking up by 0.2% and confidence of consumers is being improved.This essay will contain two main parts. The archetypal part aims to give an ov erview of the British economy has been affected by the financial crisis on the following aspects. They are currency devaluation, housing and mortgage market bubble as well as the employment constitution. In the indorsement part, this essay will demonstrate the consequences of these aspects and efforts contributing to the British economic recovery, especially for employment policy. For a better understanding, efforts and consequences will follow behind by introducing the tether aspects.First of all, devaluation is a natural process in financial markets. All currencies exchange rate will rise or fall based on the external situation and the states financial condition. Assume 5 British pounds were able to buy 10 U.S. dollars years ago, today the pound could be de apprised and its purchasing power would only be enough to buy 7 dollars. Compared with the devaluation of the market, governments more or less the world sometimes use devaluation as a balance tool to protect their trade. F or instance, the country could benefit from the lower cost of its export of goods if the currency is devaluated. Meanwhile, the lower currency value encourages exports and discourages substances, which could improve trade deficit and imbalances for the country. So far, the sharp depreciation of greatest in 2008 was not due to naturally devaluation process but by the admittedly power-driven, the global financial crisis (Broadbent, 2011).In addition, trade performance of the UK since financial crisis in 2008 has been part of an essential developments in the British economy. Despite a fact that big depreciation in the value of sterling, which should have enhanced the UKs competitiveness theoretically, the performance of UK trade has remained relatively stable (Hardie et al., 2003). As keep be discover in the figure 1, there was a massive depreciation from 2007 to 2008 and the trade deficit stayed open. At the same time, import prices went up by a fairly large amount as well as ex port prices according to the figure 2. Which is not coherence with economic theory that currency depreciation encourages exports and discourages imports. habitus 1 Sterling nubive exchange rate and balance of UK tradeFigure 2 Sterling effective exchange rate index and UK import and export price indicesFigure 3 Earnings against inflationMoreover, the reason for why there was a large depreciation of sterling during 2007 and 2009 is because the value of the sterling is tied up with the price and turnover of financial assets in the City of London. While, the UK does not contribute to the same lay as America, which has the Worlds reserve currency. And hence when asset prices took the hardest hit in 2007-2008, the sterling did as well. This phenomenon demonstrates the sensitivity of the sterling that might occur in the financial markets. Furthermore, based on figure 3, the consequences of sterling depreciation cause a dramatic decline with earnings growth from around 4.5 per cent in 200 7 to just above 1 per cent in 2009, sluice though the price inflation decrease during 2008. Forecast could be made from the data that standards of backing quality for British people fall markedly (Hardie et al., 2003).The second impact by the 2007-2008 global financial crisis within the British economy is housing and mortgage market bubble. The Royal Institute of Chartered Surveyors (2010) point out that the housing market is playing an essential role in UK economic activity, and there was a high owner- parentage rate stood at 68% in 2010 (Niklewski et al., 2013, PP. 518530). However, the financial crisis associated with the credit crunch means that the UK market faced a further problem relating to the housing and mortgage market. Prior to the financial crash, borrowers were in a position to finance at least 95% of the purchase price using mortgage debt (Niklewski et al., 2013, PP. 518530). By contrast, banks withdrew the majority of these offers after crash, and many increase the required down-payment from the historic average of 10 percent to 25 percent (Niklewski et al., 2013, PP. 518530). The British Banking Association (2013) indicates that house purchases sum cut from almost 12 billion in November 2006 to around 2000 in November 2008. Prima facie this had improved slightly to 4550 million by July 2012, but this was still below the historical average. In terms of credit becomes more quick available eventually, the housing market still performs unlikely to revert to pre-crisis levels. Hence, the UK Financial Services Authority (FSA) placed proposals to a greater formal restriction on mortgage lending. The Council of Mortgage lenders suggested that the implementation of these proposed restrictions could see four million fewer mortgages in the United Kingdom over the subsequent four years (Niklewski et al., 2013, PP. 518530).Finally, international financial crisis caused serious problems on the status of British employment. And the National Bureau of Sta tistics report shows that by October 2008, there were more than 150,000 jobs to be cut. Thus, UK jobless claims have increase by 257,500. Moreover, the British company lay off up to 38,588 people mainly due to high cost and low demand during the preceding three months.Under such situations, the British government had taken a number of steps to slow the further development of expanding unemployment and helped to recover the British economy to some certain extent. This could be split into two points. The first one is to encourage employment directly. And there are four policies will be presented at this point. insurance policy one at least 100,000 new jobs were established through groundwork projects. The British government implemented a total of 10 billion for infrastructure investment plans in 2009, including education, transportation and other infrastructure projects in order to create at least 100,000 additional jobs. This measure was appropriate to provide a large number of job s for British workers, reducing the unemployment rate as well as promoting the improvement of infrastructure. This has encouraged the development of economy and city construction in the long run. However, the biggest problem is the huge pressure for fiscal policy of expenditure, which may go out to British citizens tax burden in the future.The second policy was for women were real training allowance for re-employment. This policy had improved the housewife job enthusiasm to some significant extent, and it relieved the economic pressure due to decrease income by husband unemployment also promoted the sex ratio of the employment market equilibrium. However, this policy has intensified competition among job markets, the employment situation will deteriorate further, and the effect may deviate from the original purposes. Policy three was the National Program to promote the employment of university students. Based on the view of the great employment pressure, the British government lau nched a National Program in 2009, helped the college students who were failed to find a job to get an internship in enterprise or other organizations, improving their occupation and comprehensive quality by skill training (White Paper, 2011). Then, reach the goal for the final realization of employment. This policy increased the quantity and quality of employment. At the same time, because of financial crisis, British unemployment rate for young people under the age of 25 continues to increase. Hence, the British government introduced a number of youth employment measures for 18 to 24 years old people, to help them find work or study, where can improve their employment skills (White Paper, 2011). The positive effect of this policy is apparent. For instance, recent figures from the Office for National Statistics show that about 30 million people were in work at the end of 2012, an increase of 154000 on the quarter to September, which is the most obvious improvement since 2007 (King, 2013)The last policy was restricting immigration. The British government started to increase the difficulty of immigrants in October 2008 (GOV.UK, 2014), and limited the number of British immigrants to the open jobs. This policy has reduced the British resident employment pressure to a certain extent, but it will cause hatred between the British and foreign immigrants, which may lead to the problem of racial discrimination. Meanwhile, this policy made life more difficult for immigrating people who have already lived in the UK. Therefore, government had to increase fiscal expenditure on their housing and daily expenses. Which was also made the foreign immigrants cannot engage in some work that British people do not insufficiency to engage in, it may hinder the British economic development to some extent.The second point was to pay a subsidy to the unemployed class, and this will be introduced by three policies. The first one was spending 50 million to help the unemployed people. In order to cushion the impact of the economic recession, the British government planned to apply for a package of measures to help the long-term jobless workers back to the positions in the next two years since April 2009. Spending on this plan was around 50million, which including paying compensation to the company to hiring workers who are unemployed for more than six months. These measures improved the re-employed workers skills and promoted the employment rate. However, paying subsidy to jobless people may cause ethical risk of infections of enterprises. Because of obtain the compensation payment from the government, enterprises may take negative training even repeat its layoffs behavior, which leads to the re-employment rights and interests cannot be ensured.The second policy was that an unemployed worker could delay the mortgage interest payments up to 2 years. The British government provided vouchs to lenders, allowing those property buyers who lost their jobs and income app ear serious decline can delay the mortgage interest payments up to 2 years. It helps to prevent the default risk on interest payment. If this policy is implemented, buyers can afford the monthly repayment, the risk of default will be reduced. Also, it helps the buyers overcome the current financial crisis smoothly. Nevertheless, there is no accurate calculation on the cost of risky loan guarantee provided by the government. If the cost is quite high, the reachable and feasibility of the reformed policy are still far from satisfactory. At the same time, the Bank of England offers loan, if the government is liable for guaranteeing costs, the liquidity will become worse, which may lead to continuing market turmoil.The final policy was raising the minimum wage standard. The British government elevated the minimum wage standards in the late 2008. However, it was obvious to see the dual characters of this policy during the recession. On the one hand, there is an undeniable fact that an increase in the minimum wage will increase income of workers living at the bottom of society relatively, which strengthen their basic livelihood security and maintain their basic living standard for low income groups. It serves to sustain the stability of British society. On the other hand, minimum wage standards will also increase the labor cost of enterprises directly. The increased burden would have a negative effect on employing workers, and cause the amount of jobless people increase, which deteriorates the employment environment. Even bring negative effect on the British economic recovery.