An Increase In UK Foreign Currency Reserves

A recent press notice concerning official holdings of international reserves from HM Treasury and the ONS shows that in December 2010 the UK Government's net foreign currency reserves stood at $38,366m, up $976m. Gross reserves were up $2,836m to $78,801m. The Bank of England's net level of reserves were up $18m to $2m and the gross level of holdings was up $2,890m to $27,500m.

There were no intervention operations in December 2010 to support sterling by the Government of by the Bank of England to support their monetary policy objectives.

Productivity Comparisons For 2008

Data from the Office for National Statistics show that in 2008 UK GDP/worker was above Japan, similar to Canada and Germany, below that of France, Italy and the US and lower than the average of the G7 excluding the UK. On the basis of GDP/hour worked the UK is above Japan, similar to Canada and Italy but below France, Germany and the US.

The UK experienced faster productivity growth than all other G7 countries since 1991 by the GDP/worker measure. UK GDP/worker had grown by 39% since 1991 compared to the G7 average of 29%. UK GDP/hour worked increased by 49% between 1991 and 2007, the fastest growth of any G7 country for that period. The G7 average excluding the UK was 36%. GDP data for each country are coverted using purchasing power parities to make them comparable.

Bank Maintains Interest Rates At 0.5%

The Bank of England's Monetary Policy Committee decided at their meeting on 7 May 2009 that the bank rate will stay at 0.5% on commercial bank reserves. The MPC also decided to increase the size of its asset purchase programme by £50 billion to £125 billion. The world economy remains in deep recession, global output has contracted and international trade has fallen. The increase in private saving, the restructuring of balance sheets by banks and weaker global demand will continue to hold back economic activity. Another factor acting in the other direction is the stimulus given by governments around the world to improve the availability of credit by easing in monetary and fiscal policies. It was decided that as the stimulus is expected to eventually lead to a recovery in economic growth and inflation to return to the 2% target, the interest rate should remain at 0.5% and also to continue with the programme of asset purchases financed by the issuance of central bank reserves and increase its size to £125 billion.

This Way To The Trough

Economics analysts try to understand the economic world and then devise policies to try to improve it. Economic policy makers try to predict the outcome of alternative economic policies and evaluate them on a scale of better to worse by stating policy objectives and analysing policy outcomes according to political sentiments. An objective and scientific evaluation can be made of economic policy objectives such as efficiency, stability, growth and equity. Economic growth, in terms of incomes and productivity, is one of the main objectives of economic policy. Even in times of recession, economic performance is measured as a decrease in real GDP, or negative economic growth.

Growth transforms poor societies into rich ones but it has costs. The costs of growth are that in doing so it uses up exhaustible natural resources and might damage the environment. Two key factors that influence growth are technological advancement and capital accumulation. Devoting resources to one thing means they are not being devoted to anything else. There is always an opportunity cost. If resources are being used to discover new technologies and new forms of capital, they cannot be used to increase consumption goods and services or on current environmental concerns.

Growth can be measured in terms of the increase in real GDP. The periodic but irregular movement of economic activity we call the business cycle measures fluctuations of real GDP around potential GDP, the real GDP that could be produced if resources were fully employed. The economy has officially entered a recession and will eventually reach a 'trough' or turning point at which it will enter another phase of expansion. It is considered severe at the moment but is not expected to be as severe as a depression. Recessions are unpredictable as are animal spirits. One of the government's problems is closing the recessionary gap (Parkin, Powell and Matthews, 1997).

The current recession could be said to have global proportions. Globalisation means that process by which the production and marketing of products is becoming more integrated and interdependent (Harrison, Dalkiran and Elsey, 2000). As a result of this global economic interdependence the effects of the 'credit crisis' are being felt all over the world. The problem for the international institutions is that there is no model in finance, economics or international business theory that can explain or predict capital flows. The international institutions themselves may be out of date for the problems of the global environment. GATT has been replaced by WTO. The IMF was designed for a system that no longer exists. Internationally agreed policies may be required to curb the trend toward greater deregulation and international financial anarchy (Dawes, 1995).

Growth and population are often related. Rapid economic growth may be linked to rapid population growth. Real GDP per person is a measure of real GDP divided by population and can be used to compare growth rates across countries and over time. There may be similar features in productivity growth figures, business cycles and long-term trends in potential GDP in countries like the major OECD countries.

Long-term economic growth means expanded consumption possibilities, a better environment, pensions, welfare and more support for the poor and disadvantaged. When the rate slows the opposite effects and losses are felt. There is a relationship between the long-term growth rate and welfare and usually a trade-off between spending on welfare and on the productive sectors of the economy that generate growth. One of the biggest problems of macroeconomics is finding a balance of resource allocation between the two rival claims (Parkin, Powell and Matthews, 1997).

The scarcity of resources means that a frontier exists between what is attainable and unattainable in terms of production possibilities. Inward shifts along the frontier reduce our production possibilities and outward shifts expand the possibilities and resources are decreased and increased. Firms reduce production and prices for short-run equilibrium to eventually restore long-run equilibrium or they wouldn't be able to sell their products and customers buy what they need. Consumers may in fact be worried about their incomes and cut spending which would in turn leads to job losses, falling investment and a deepening of the recession. Consumer efficiency occurs when utility cannot be increased by reallocating their budgets. They should budget as wisely as ever for utility, preferences, indifference, substitutes and prices they can afford.

We can only continue to analyse the economic world, gain a greater understanding of how it works and devise institutions to that might improve economic performance. One thing is pretty sure, all the questions and answers will arise from scarcity (Parkin, Powell and Matthews, 1997).