Essay Example: British Government

How successful have the British Government and the Bank of England been In running the British Economy over the last 2 years? Introduction This essay will demonstrate the measures of success that the British Government and Bank of England have delivered for the periods of 2010 and 2011. In order to achieve this outcome it was first necessary to briefly describe some background to how the Bank of England became so involved and how their input has had a direct affect on Inflation and Interest rates. Which are two measurable indicators used In business and economics. In terms of measuring success it was also necessary to compare and contrast other European countries economic performance over the same period. This approach was chosen, as there needed to be some sort of comparison to make any comments meaningful. Measuring year on year In Isolation would show and provide information but as the UK is part of the European union it was important to measure the UK performance against other similar economies.

Background Control of setting Interests rates became the responsibility of the Bank of England on 6th May 1997 (BBC Homepage 1997) when prime Minister Tony Blair announced the Banks independence from political control. The governor of the Bank of England, Mr. Eddie George stated at a press conference that day that he “wanted to set in place a long-term framework for economic prosperity’ which would “break from the boom bust economics of previous years. This was a very important and bold change In how the I-J had managed its finance for hundreds of years, where previously the chancellor of the exchequer would meet with the Bank of England governor and both sets of advisors and agree interest rates together. The German economy had been UN for some time successfully by their Bundestag, the equivalent of the Bank of England and they had helped to make Germany an economic superpower in Europe. This was the model that was adopted by the ELK. ‘OFF ere Bank of England had two main targets to achieve after the financial collapse of 2007 and 2008.

Their responsibility was to set base interest rates and also to influence the supply of money – which in the years of 2010 and 2011 actually meant the increase to the supply of money through a system known as Quantitative Easing. Quantitative Easing is the process of pumping money into the economy and according to a report in 2009 from the BBC “Lower interest rates encourage people to spend, not save. But when interest rates can go no lower, a central bank’s only option is to pump money into the economy directly.

That is quantitative easing (CEQ). ” The nana of England did this is by buying assets (over a 2 year period they spent Beebe) – using money it has simply created out of thin air. The institutions selling those bonds :either commercial banks or other financial businesses such as insurance companies) Nil then have “new” money in their accounts, which then boosts the money supply. It Nas tried first by a central bank in Japan to get it out of a period of deflation following its asset bubble collapse in the sass.

Prior to 2009, CEQ had never been tried before n the I-J. It is important to distinguish between what the UK government are responsible for and what the bank of England could influence. Already stated that we see the Bank of England had responsibility for interest rates and money supply and this is known as Monitory Policy and the UK government had direct responsibility for Nat is known as Fiscal Policy. The fiscal policy controlled by government involves the eating of taxes and government spending.

Together in theory if both the Bank of England and I-J government can work towards the same goal – creating a stable economy, then in economics sense this should be achievable. Successful Measurement In terms of comparisons to other European countries the UK financial situation could be described as better than many other countries, especially Portugal, Italy, Ireland, Greece and Spain (PASS) who have all seen dramatic financial collapse, leading to public demonstrations as many services were cut, rises in unemployment and increased inflation.

A Bank of England report (www. Newfoundland. Co. UK ) into the effect of its first round of CEQ (that is, the Ebony worth of purchases made between March and November 2009) suggested that the measure had helped to increase the Auk’s annual economic output by between 1. 5% and 2%, indicating that the effects of the programmer had been “economically significant”. At the same time interest rates in the I-J rose from 1. 8% to 3% over the 2 years of 2010 and 2011.

In contrast to their European neighbors, the I-J saw higher interest rates with the average across Europe across the months of 2010 and 2011 at approximately 1. %. (trading economics 2013). Conclusion ere conclusion drawn from the information obtained is that the Bank of England and the I-J have been relatively successful if measured against other similar sized nations across Europe. True measurement though is done by looking at Inflation rate, 3 month Treasury rate, public debt, and imports and exports, :economics watch 2013).

In this case the UK has not done so well with higher inflation, freezes on public services, increased national debt and increased unemployment (economics watch 2013) – this therefore is more of the effects on the people of the UK as a result of the Bank of England and the I-J government working together on fiscal and monitory policies, so in comparison to other less fortunate European states the UK has done better but for the people of the I-J the result compared to previous “boom” times is not satisfactory. 944 Words) References http://news. BBC. Co. UK/notations/hi/dates/stories/may/if newsier_3806000/3806313. Stem Article from the BBC homepage detailing the regulation of interest rates and autonomy of the Bank of England [Accessed 34/03/2013] http://www. Economically. Erg/blob/1850/economics/difference- between-monetary-and-fiscal-policy/ An article explaining the dynamics of economy control and partnership between the UK government and the Bank of England. [accessed 07/03/2013] http://www. BBC. Co. K/news/business-15198789 An article from 7 March 2013 on quantitative easing and its impact and effect on the I-J economy, [Accessed 09/03/2013] http://www. Bankrolled. Co. UK/publications/Documents/ quarterfinal’s/job 10301 . PDF The United Kingdom’s quantitative easing policy: design, operation and impact By Michael Joyce, Matthew Tong and Robert Woods of he Banks Macro Financial Analysis Division [Accessed 10/03/2013] http:// NNW. Tragicomedies. Com/Euro-area/interest-rate information on rate changes on average across the European Community for 2010 and 2011 [Accessed 17/03/2013] http://www. Commonwealth. Com/world_economy/united-kingdom/bank-of-England- monetary-fiscal-policy. HTML Article on the history and results of the Bank of England Morning hand in hand with the I-J government to help the I-J economy [Accessed 18/03/2013] http://www. Economically. Com/world_economy/united-kingdom/UK- economic-indicators. HTML Article on economic indicators used to assess economies [Accessed 18/03/2013] Question Part (b) rent and the Bank of England over the last two years?

In researching this paper it became very obvious at the earliest stage that this subject is very complicated and that some of the policies introduced to help the economy were new to the UK but had been tried before in other countries. Research has produced varying opinions as to the success or failure of the macroeconomic policies and this is further complicated by the state that not Just the I-J found itself n after 2007/2008 but also many of the Auk’s trading partners.

Also the reason the Hears 2010 and 2011 were chosen were that it is only recently that proper evaluation of the success or failure of the interventions and policies made during those 2 years can be accounted. The I-J is the third largest economy in Europe, after Germany and Spain and as such in regarded as an important trading partner and customer. Macroeconomic Policies ere Bank of England ere macroeconomic policies used by the British government through the Bank of England over the two years of 2010 and 2011 included providing liquidity through ‘arioso Liquidity support operations.

That was in direct respond to the financial crises of 2007 which got worse in 2008, with the collapse of Lehman brothers and subsequent mortgage lenders across the world, particularly in the USA. The aim of the liquidity support policy was to unblock interbrain markets and ease funding conditions more generally. A lot of this measures involved extending the scope of existing facilities. Many central banks, including the Bank of England expanded their normal lending operations to banks by lending at longer time frames and by reducing the amount of the eligible collateral accepted. There were also a large number of new initiatives.

The Bank of England, for example, introduced the Special Liquidity Scheme to swap high-quality assets from banks in return for Treasury bills and later the permanent Discount Window Facility 2 At the Bank of England’s annual conference, held in November 2011 papers presented broadly supported the belief that Quantitative Easing (CEQ) and other unconventional monetary policies had helped to lessen the macroeconomic effects of the global financial crisis. L Evidence presented at the conference suggested that asset purchases by the Bank of England ND the Federal Reserve had led to significant falls in government bond yields.

There was also “evidence that asset purchases and other balance sheet policies resulted in significant effects on the wider economy’ 2. In evaluating the impact of Nat the Bank of England achieved it must be understood that there were many other features and factors affecting the general economy at the time – from one perspective, there was the theory of what the Bank of England was trying to do and Saying that there was “evidence that resulted in significant effects on the wider economy’ does not actually prove that their actions achieved this solely. He I-J government ere British government prepared its fiscal budget for 2010 with a target to “maintain macroeconomic stability’3 and it did this by operating with what it called fiscal neutrality – effectively this meant no increase in public spending with longer term projects that would bring in increased revenues in later years. This then was the government’s approach not Just for 2010 and 2011 but they looked ahead as far as 2014 and 2015.

The government’s response to the downturn in the economy was ascribed as interventionist 3 as they assisted to bail out many larger banks, acquiring shares of them to keep them from going bust. They also authorized the bank of England to inject IEEE billion into the economy in the form of monitory support and finally they offered assistance to small businesses, homeowners and support for Job hunters all of which faced cash flow problems.

However there was a price to pay for the actions of the I-J government, including a freeze on all public sector workers pay, inflation increased, borrowing money became very difficult and ultimately, as was seen across Europe there were demonstrations and strikes. Therefore socially one could argue that the government’s fiscal policy were very tough on the people of the I-J and not welcome. The handling of the I-J economy does come under attack, particularly since the coalition government (between Conservatives and Liberal Democrats) came into being in 2010.

A paper presented at the Sheffield Political Economy Research Institute (SPERM) inaugural conference in Sheffield in 2012 openly attacks the nature of the government’s handling of fiscal logic stating that the debt sustainability operating margins were far too tight, “at odds with other authoritative voices in the global economy, notably the MIFF” 4 Facing growing public deficits and debt levels, in 2010 the coalition government introduced five-year austerity program, which aimed to lower the I-J budget deficit from over 10% of GAP in 2010 to nearly 1% by 2015.

In November 2011, the Chancellor of the Exchequer George Osborne announced additional austerity measures leading up as far as 2017 because of slower-than-expected economic growth and the impact of the Euro-zone debt crisis. The government raised the value added tax from 17. 5% to 20% in 2011 5 In terms of success, during the period of 2010 and 2011 the unemployment figure for the I-J rose to 7. 8% which was not good news but against the USA and Euro zone who were roughly 10% showing at least on that measurement a better than other country ratio of unemployment.

Conclusions Across Europe and North America there was a recession that could be placed as starting in 2007. Faced with combating this situation, the coalition government of 2010 was faced with a reality that included reducing public spending, increasing vat argue that the government working with the Bank of England managed to avoid the same fate as many of its European neighbors, although the I-J inflation rate was higher it still managed to keep more people in work, adding more generated income back into the economy.

The answer therefore to the question on the evaluation of the handling of the economy must be that it depends on what measurement you use. From an economic stability point of view one could argue that they were relatively successful but from a human perspective one could say they were unsuccessful.