The sub prime crisis meant the fall in the value of US dollar against most currencies of the world. The tentacles of subprime crises choked the progress of the UK economy to some extent and forced an interest rate cut. However with the expectation of the global economy to increase by 5% the UK markets expanded rapidly. Let us now compare the growth of UK economy with the other major economies of the world and discuss the various issues that affected the UK economy in 2007. We will also see the positive and negative issues that are now affecting the UK economy in 2008 and see whether the UK economy will continue its good run or struggle in 2008.
In 2007, the growth in the emerging markets was stronger than expected and the growth in the developed countries was below the expected level. However, among the developed economies, UK was an exception recording a growth higher than the expected level. Growth in the UK economy was 3.1 % which is about 0.7 percentage point better than the expected growth. Growth in US economy was 2.2% against 2.3% predicted at the start of the year 2007. Growth is Japan was 1.8% while the expected growth was 2%. It is important to note that US and Japan are the largest economies of the world. …
UK economy has performed strongly in 60 consecutive quarters.
Issues that affected UK economy in 2007
In the middle of the year 2007, negative sentiments were running high in England and the UK economy showed signs of recession. Some analysts felt rumours about a possible recession were highly speculative as the growth in the UK economy was well above the target.
Although the UK economy’s growth was well above target there were certain issues that raised concern.
1. Global credit market crisis:
The break out of global credit market crisis in the second half of 2007 forced the US to slash its short term interest rates by 100 basic points. UK joined US in slashing the interest rate and made minor changes to its monetary policy. The credit market crisis also resulted in lower bond returns in spite of the strong economic growth and higher interest rates. During this crisis the banks suffered from lack of credit to fund the growing economy.
2. Fall of UK housing market:
Worries about a possible downfall of UK housing market made recession a high possibility. The UK housing market experienced severe downfall of prices. The housing market also saw very few mortgage approvals and lending in the 2007. Very few mortgages were approved in UK because of the high rate of defaulters in US. The high default rate of borrower lend to the sub prime crisis in US. UK did not want a similar situation in its economy.
3. Recession in manufacturing industry:
The manufacturing industry was already into its second year of recession. The manufacturing sector performed dismally bad in 2006. Experts believed that the manufacturing industry because of its poor show in 2006 would suffer from lack