UK Economy
UK ECONOMY
The indicators: % change up and down
Economic Indicators:
OUTPUT, DEMAND, JOBS,
PRICES & WAGES
Output:
GDP: Gross Domestic Product
RECESSION: GDP falls by 1% for two consecutive quarters
Demand:
Retail sales index – new car registration – housing
starts – saving ratio
Jobs:
Unemployment rate – the labor market – 5.9%
registered at unemployment offices (“actively looking
for work”) – 4.2% people claiming benefits
Prices & Wages:
Inflation
1
UK Economy
Financial Indicators:
STOCKMARKETS, MONEY SUPPLY, INTEREST
RATES, TRADE
Stockmarket:
Indexes:
FTSE 100 (The City’s benchmark index)
Money supply:
% of change – Bank of England buys and sells
securities (“gilts”)
Interest rates:
Money markets, banks, bonds, domestic/foreign
credit
Trade:
imports/exports
current-account
deficit/surplus
manufacturing/producer prices/commodities
2
UK Economy
POST-WAR BRITAIN
• the end of the Empire
• rebuilding
• nationalization
• the "welfare state"
ECONOMIC GROWTH- 1950-1965
• international growth
• everything is relative
• competitors grow stronger
STAGNATION - 1965 - 1979
• OPEC oil embargo 1973
• miners strike 1973/74
3
UK Economy
• "sick man of Europe"
high inflation
strikes
poor quality
stagflation
low productivity
THATCHER'S STRATEGY: incentive
"Putting the "Great" back in Great Britain
PRIVATIZATION
telephones, gas, airport authorities
petroleum, ports, ferries, arms,
cars, electricity, water
number of British stockholders
DOUBLED
Treasury gained capital
Public housing sold
SUPPLY-SIDE ECONOMICS
monetarism (Milton Friedman)
4
UK Economy
private initiative
decrease restrictions
lower taxes
attack trade unions
open capital markets (Big Bang)
The 80s- Thatcher's record
inflation 1979: 20%
reduced during 80s
unemployment peaked at 13%
in 1986
now at 6%
north/south
productivity increased
2.7% annual increase 1982-88
unions' power reduced
1979 -- 29m days lost (strikes)
1990 -- 1.9m days
5
UK Economy
Miners' strike: 1984/85
Arthur Scargill (NUM)
Union membership falls
unemployment, unpopularity
short-term/long-term
The Problems
history
culture
management gap
education
technical education low priority
15,000 engineers educated annually
Japan- 70,000/France- 30,000
many enter workforce at 16
US - 18/Japan- 20
low vocational training:
France and Germany 80% after school
Britain 40%
investment
less spent on R&D
low pace of automation
6
UK Economy
Financial Institutions
The International Exchange-- The
London Stock Exchange
Big Bang -- 1986
more efficient/less expensive
computerization
market makers replace brokers&jobbers
The Banks
The Bank of England
Governor- Eddie George
Appointed by Treasury Department
Money Supply
Buying and Selling Bills of Exchange (Discount
Houses)
"Gilt-edged market" - securities
Minimum Lending Rate
Money Markets
7
UK Economy
COMMERCIAL BANKS
Big Four:
Barclays, Lloyds, Midland,
National Westminster
MERCHANT BANKS
No depositors
Corporate finance
HAMBROS/Barings (Nick Leeson)
8
UK Economy
Britain and the EU
1993-- Britain signs Maastricht
Thatcher: Britain paying more than fair share
Used veto to negotiate better deal
1990-- Thatcher resigns
Major strong supporter of EU
Maastricht summit-- Dec. 1991
concessions:
exemption from Social Charter
right to opt-out of European Central Bank (EMU)
"Federation" not used in protocol
Tony Blair – New Labour
Strong economy
Growing gap between rich and poor
Single Currency Issue – referendum
9