economic climate uk

Decent Essays
Exchange rate
Housing issues
Private and public consumption
Investments opportunities: pros and cons


Sterling has been floating since the UK withdraw from membership of the ERM in September 1992. Since that moment, the Bank of England has not intervened to influence the pound’s value, as it became independent from the UK government.
With a free floating exchange rate, the value of the currency is simply determined by supply and demand of the market. The Central Bank cannot set a target exchange rate and intervene in the market exchange rate for this purpose.
The advantages of a free floating rate are several:
No exchange rate target, so the Central Bank doesn’t need to hold foreign reserves;
Use of
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This recovery is mostly due to the government schemes to make credit more easily available and to the accommodative monetary policy of the Bank of England. The credit easiness results in a higher demand from the market, with obvious positive implications in the field.
However, some experts say that the main risk that could arise is the outbreak of a new housing bubble. The proof of this would be the leap in house prices in London of 10.2% between September and October.4
Many argue, however, that the problem would be simply due to the fact that the offer has not been able to adapt to a growing demand, after the sharp decline in the previous years.


According to the Office for National Statistics5, in Q2 2013 private spending (adjusted for inflation) grew by 0.3% on previous quarter, reaching £661m. In terms of volumes, household spending has increased by 0.3% but still remains 2.8% below the peak of spending in Q4 2007. Anyway, the recovery of private consumption is slowly materializing, since consumption in terms of volume are 4% higher than the recent low in Q2 2009.
The chart below shows the private consumption developement by quarter.

If instead we focus on the value of consumption at current prices,we will notice that in the second quarter 2013 current price spending increased by 0.9% compared with Q1, continuing the positive trend of growth
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