Policy conflict for the UK economy?

The IMF is forecasting a slowdown in global growth to 3.7% in 2008 and 2009. This is in contrast to recent growth rates of over 5%.

UK growth is expected to fall to 1.6% with the main factors given being:

1. a weakening housing market (housing in the UK is possibly up to 20% overvalued according to the report)
2. contraction of output and jobs in the financial sector
3. slower exports due to weaker growth in Europe and the US

The pound has also fallen to a record low against the euro today following expectations that the base rate will be cut tomorrow. Ordinarily a weaker domestic currency would be expected to boost export growth by increasing the competitiveness of domestically-produced goods both at home and abroad, but with growth slowing in the UK’s two main export markets (the EU and USA) this is possibly less likely to help.

Alistair Darling remains upbeat - but realistically the UK economy is facing a serious correction in upcoming months, although the extent of this is debatable (see Nick Fawcett’s related and recent article here).

Should the base rate be cut this month? Although likely, the extent to which it would increase the willingness and ability of consumers to keep spending (and particularly in the housing sector) is debatable as bank lending rates remain stubbornly high, and lending conditions increasingly tight, despite recent cuts in the base rate. Of greater interest may be the impact of the base rate on the exchange rate, not least because this could lead to imported inflation.

Could a lower base rate actually stoke inflationary pressure? Perhaps a good evaluation question for both AS and A2 macroeconomics lessons this week…..

Unit 2 Macro: Evaluation on Supply-Side Policies [21 May 2012]
Unit 2 Macro: Migration and the UK Economy [20 May 2012]
Unit 2 Macro: Measuring Inflation in the UK [20 May 2012]
Unit 2 Macro: Real Interest Rates [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Unit 2 Macro: The Output Gap [20 May 2012]
Revision notes on unemployment [20 May 2012]
Unit 2 Macro: Bank Cuts UK growth Forecast for 2012 [16 May 2012]
Improving Evaluation Skills in Economics Exams [16 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Unit 3 Micro: The Dawn of a Shareholder Spring? [8 May 2012]
UK Economy Update - AS/A2 Econ Evaluation Special [7 May 2012]
Unit 4 Macro: TV Assembly Back in the USA [5 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Unit 2 Macro: Economic Cycle Glossary [5 May 2012]
Unit 2 Macro: Aggregate Demand Glossary [5 May 2012]
Exam Technique for Economics - Weesteps to Evaluation [5 May 2012]
Macro Revision - Key Statistics on the UK Economy [4 May 2012]
Unit 1 Micro: Using the Cost-Benefit Principle [30 Apr 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
2012 Economics Revision: Ways to Improve your Paper [9 Apr 2012]
Unit 2 Macro: Inflation and the Business Environment [6 Apr 2012]
Unit 2 Macro: Revision on Real Economic Data [2 Apr 2012]
Unit 2 Macro: Revision on Real Disposable Income [2 Apr 2012]
Posen on slower growth in the UK compared to the USA [30 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
Beyond the Bike - Monetary Policy in Africa [28 Mar 2012]
Unit 4 Macro: Evaluating 3 Years of Quantitative Easing [27 Mar 2012]
Solar Panels and Tariffs [21 Mar 2012]
Unit 4 Macro: Video Resources on the Euro Crisis [10 Mar 2012]
Evidence of the dangers of protectionism [9 Mar 2012]
Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
Unit 2 Macro: Might Oil Prices Bring another Recession? [4 Mar 2012]
Economies hooked on central bank stimulants? [4 Mar 2012]
Unit 1 Economics: Panorama - Poor America [17 Feb 2012]
Unit 4 Macro: King on the UK Economy [15 Feb 2012]
Unit 2 Macro: Signs of Progress for Zimbabwe [29 Jan 2012]
Unit 2 Macro: Focus on China - Inflation [26 Jan 2012]
Inflation - what’s up, what’s down and what’s going to happen next [17 Jan 2012]
Unit 4 Macro: UK Bond Yields Reach Record Lows [11 Jan 2012]
Revision Presentation: Economics Evaluation Skills [10 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
Hopes and Fears 2012 [10 Jan 2012]
Unit 2 Macro: Quantitative Easing in the UK [8 Jan 2012]
Unit 2 Macro: A Jobs Boost for the US Economy [8 Jan 2012]
AS and A2 Economics - 10 Ways to Improve Evaluation [4 Jan 2012]
Unit 4 Macro: Exchange Rate Economics - Where next for the US Dollar? [31 Dec 2011]
2011 in Review - The US Economy [27 Dec 2011]
Unit 4 Macro: Prospects for the African Economy [21 Dec 2011]
Rising prices and falling real incomes [13 Dec 2011]
Unit 4 Macro: India - the Road Ahead [7 Dec 2011]
Beyond the Bike - The Value of Money [19 Nov 2011]
Unit 4 Macro: America’s hour-glass economy [9 Nov 2011]
US Budget Visualised [7 Nov 2011]
The World Economy: how did we get here and where are we going? [2 Nov 2011]
Australia lowers interest rate to 4.5% [1 Nov 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
Unit 4 Macro: Unit Labour Costs and Inflation [12 Oct 2011]
Unit 4 Macro: UK Inflation Charts [12 Oct 2011]
The Return of Protectionism? [12 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
University Challenged [11 Oct 2011]
Unit 2 Macro: Homework Assignment on Consumer Spending [3 Oct 2011]
Unit 1 Micro: Exercise on Market Supply [26 Sep 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
Inflation in India [18 Sep 2011]
Unit 2 Macro: Interest Rates and Income Inequality [16 Sep 2011]
Study Note - Macroeconomic policy objectives [16 Sep 2011]
Unit 4 Macro: Inequality and Development [12 Sep 2011]
Eurozone macroeconomics for 9 year olds - brick by brick [7 Sep 2011]
Mixing with the Nobel Economists [4 Sep 2011]
John Kay on the future of Economics [26 Aug 2011]
Monetary Policy Roundtable [25 Jul 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Global Aging - New IMF Video [10 Jun 2011]
A2 Macro: Consumer Spending [30 May 2011]
AS Macro Key Term: Supply-Side Policies [25 May 2011]
AQA Macro: Remember to revise inflation [25 May 2011]
AS Macro Key Term: Demand Pull Inflation [24 May 2011]
AS Macro Key Term: Deflation [24 May 2011]
AS Macro Key Term: Cost Push Inflation [24 May 2011]
AS Macro Key Term: Inflation [24 May 2011]
A2 Micro: The Importance of Profit [19 May 2011]
UK Economy Update: What Mervyn Said [11 May 2011]
Review of “Adapt” by Tim Harford [9 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
Macroeconomics revision - measuring Consumer Confidence [4 May 2011]
AS Micro: Rising Global Food Prices [2 May 2011]
Video Clips on the Chinese Economy [1 May 2011]
AS and A2 Macro Revision: Keynesian Economics [28 Apr 2011]
UK Economy at a Glance April 2011 [17 Apr 2011]
China set to become exporter of inflation [14 Apr 2011]
What is the IMF? [12 Apr 2011]
A2 Macro: Back to Roubini - a Year On! [11 Apr 2011]
Tracking the Global Economy - IMF on You Tube [11 Apr 2011]
AS Macro Key Term: Real Disposable Income [11 Apr 2011]
Unit 3 Micro: Solar Panels and Economies of Scale [11 Apr 2011]
AS Macro Key Term: Monetary Policy Tightening [11 Apr 2011]

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