ECON8003 | International Trade | Trade Performance in the UK Economy
Answer:
Introduction
Macroeconomic indicators are the statistics of a certain economy which are released by the government agencies periodically (Kramer, 2012, p. 1655). The purpose of the statistics is to predict the future performance of the economy. There are several macroeconomic indicators; GDP, Inflation Rate, Unemployment rate and many more. Trade performance on the other hand is the mechanism which an economy uses to measure trader’s risk tolerance and return (Nallareddy, 2016, p. 151). This report will focus on the three major macroeconomic indicators; inflation, GDP and unemployment rate in the UK economy. The report will also analyse the trade performance in the UK economy.
Gross Domestic Product(GDP).
Gross Domestic product is described as the total market worth of all the goods and services which a nation produces within its
border in a certain period of time (Oulton, 2013, p. R59). It includes the production of the foreign firms which work in that particular country but does not include the production of domestic firms which are abroad (Giese, 2014, p. 65).
The GDP shows how an economy is flowing when it is compared to the previous years. Gross Domestic Product income includes the salaries, profits, wages, interests and taxes by the government. On the other hand, the expenditure includes the government spending, consumer spending, investment, business spending and also spending on exports minus spending on imports. GDP affects the inflation as well as the stock market of the economy. The increase or decrease in GDP affects the rate of investment. Example if the investors predict the increase in GDP in future, they will end up paying more for stocks, but if they predict the decrease in GDP, they will buy less for the stocks. Hence these affects the stock market (Oulton, 2013, p. 76).
According to the theory of “wealth effect”, the decline in stock market leads to the personal wealth decreasing because people cut their spending. A change of consumer spending affects the GDP.
The GDP in the United Kingdom in 2017 was around 2622.43 billion USD. In the whole world economy, the GDP in UK is represented by 4.23% (Giese, 2014, p. 25). The average GDP of 1162.89 USD Billion was recorded from 1960-2017 where it was higher in 2007 recording 3074.36 USD Billion and lower in 1960 recording 72.33 USD Billion.
The table below shows the GDP in United Kingdom from 2008-2017.
UK GDP
(Oulton, 2013, p. 69).
Inflation
Inflation is the rate of price rise of goods and services and the worth of the dollar at a given time period. Types of inflation include hyperinflation and stagflation. Inflation is measured by either consumer price index or personal composition expenditures. Some of causes of inflation include cost-push inflation, demand-pull inflation, government spending, money supply and exchange rates (Joyce, 2010, p. 281). To prevent inflation, we should spend money on long-term investments, invest in commodities, invest in precious metals and gold, invest in real estate, stick with equities and consider TIPS.
Inflation is significant because it determines the amount of investment being lost and rate of return to reimburse the attrition. The impact of inflation on stock prices comes from impact on the earnings of the firm. Low inflation is preferred to high inflation in the markets.
In the United Kingdom the inflation in September 2018 was 2.4% while in august 2018 inflation was at 2.7% (Bachan, 2017, p. 1580). The low recordings of inflation were due to low cost of food, recreation, culture, transport and less clothing prices. The average inflation of 2.58% was recorded from 1989 to 2018 where it was higher in 1991 with 8.50% and lower in 2015 with a record of -0.10%.
The table below shows the UK inflation rate from October 2017 to September 2018.
UK Inflaton Rate
(Joyce, 2010, p. 154)
Unemployment
Unemployment is the situation where people who do not have jobs are actively looking for one. Types of unemployment include structural joblessness, real wage redundancy, frictional redundancy and voluntary joblessness. Unemployment is measured by either claimant count or labor force survey. Some of the major causes of unemployment are technological advancements, specialization of jobs, firms prefer to hire less people, people choose to be unemployed, high illiteracy of men and women, workforce immobility. The problem of unemployment leads to reduction of spending power of people, affects the economy negatively, leads to depression of a person and high crime rates in the country especially the youths (Smith, 2011, p. 402). The problem of unemployment can be solved by creating more job opportunities and encouraging people to enter the diversified fields.
This is also another factor which affects labor market where UK citizens who are working represent the employed while those looking for jobs represent the unemployed.
In the United Kingdom, the unemployment rate was 4% in the 3 months to August 2018. From march to May unemployed number declined by 47000 and employed number dropped by 5000 (Bell, 2010, p. R3). The average of unemployment rate from 1971 to 2018 was 7.03% with higher rate of 12% in February 2018 and a lower rate of 3.40% in November 1973. The table below shows the unemployment rate in the UK from September 2017 to August 2018.
UK Unemployment Rate
(Bachan, 2017, p. 35).
Balance of payment
The United Kingdom’s current account deficit was £17.7 billion and this was a representation of a 3.4% of the unrefined domestic product in the first quarter of the year 2018.the latter was a tapering of £1.8 billion which came from the previously reviewed shortfall of £19.5 billion (3.8% of GDP) in Quarter 4 2017.the UKs BOP narrowed down as a result of reduction of the trade deficit and the basic revenue deficit which was partially offset by the widening of the quarterly income in the first quarter of 2018 (Bell, 2010, p. 145).
The entire trade deficit tapered to £3.8 billion in Quarter 1 2018.the latter was from £5.7 billion in Quarter 4 of the year 2017.the primary income deficit narrowed by £1.5 billion in Quarter 1 2018 to £8.1 billion from a reexamined shortage of £9.6 billion in Quarter 4 2017 (Bell, 2010, p. 154).
Conclusion
Macroeconomic indicators are the statistics of a certain economy which are released by the government agencies periodically. There are several macroeconomic indicators; GDP, Inflation Rate, Unemployment rate and many more. Gross Domestic produce is described as the total bazaar worth of all the goods and services which a country produces within its border in a certain period of time Inflation is the rate of price rise of goods and services and the worth of the dollar at a given time period. Types of inflation include hyperinflation and stagflation. Inflation is significant because it determines the amount of investment being lost and rate of return to compensate the erosion. Unemployment is the situation where people who do not have jobs are actively looking for one. This is also another factor which affects labor market where US residents who are employed characterize the laboring whereas those eyeing for jobs represent the unemployed.
References
Bachan, R., 2017. Grade inflation in UK higher education. Studies in Higher Education,42(8), pp. 1580-1600.
Bell, D., 2010. UK Unemployment in the great recession. National Institute Economic Review,214(1), pp. R3-R25.
Giese, J., 2014. The credit-to-Gdp Gap and complementary indicators for macroprudential policy:Evidence From The UK. International Journal of Finance and Economics,19(1), pp. 25-47.
Joyce, M., 2010. Etracting inflation expectations and inflation risk premia from the term structure:a joint model of the UK nominal and real yield curves. Journal of Banking and Finance,34(2), pp. 281-294.
Kramer, A., 2012. Exploring the association between macroeconomic indicators and dialysis mortality. Clinical Journal of the American Society of Nephrology.7(10), pp. 1655-1663.
Nallareddy, S. a. O., 2016. Predicting restatements in macroeconomic indicators using accounting information. The Accounting Review,92(2), pp. 151-182.
Oulton, N., 2013. Has the growth of real GDP in the UK been overstated because of mismeasurement of banking output?. National Insitute Economic Review,22(1), pp. R59-R65.
Smith, J., 2011. The ins and outs of UK unemployment. The Economic Journal,121(552), pp. 402-444.
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