Theme 2 Macro

UK

Run a current account deficit since 1985

Wanted to reduce emissions by 78% by 2035

Russia Ukraine war

• Higher energy and commodity prices due to supply disruptions, leading to increased inflation globally.

• Supply chain disruptions causing shortages and higher costs for goods, impacting production and trade.

• Increased economic uncertainty reducing investment and slowing growth in many countries.

Covid

• Sharp decline in economic activity due to lockdowns, causing recessions and rising unemployment worldwide.

• Disruptions to global supply chains, leading to shortages and rising prices of goods.

• Massive government spending to support businesses and households, increasing public debt levels.

China

China experienced significant export-led economic growth from 1988 to the global financial crisis of 2008

Macroecon objective stats

Gini target of 0.3-0.4 (income equality)

Developed nations have annual target rate of 2-3% economic growth rate

UK Monetary Policy (Interest Rates)

• 🔹 2020–2023: Bank of England cut interest rates to 0.1% in 2020 during COVID to stimulate spending (expansionary monetary policy).

• 🔹 2022–2024: Raised rates steadily up to 5.25% (as of late 2023) to combat high inflation (tight monetary policy).

• Interest rates currently at 4.25% and inflation at 3.6%

UK Fiscal Policy (Government Spending and Tax)

COVID-19 (2020–2021): Government introduced furlough scheme (£70bn) – expansionary fiscal policy to prevent mass unemployment.
Increase in Employer National Insurance Contributions (Effective April 2025)

• From April 6, 2025, the employer NIC rate will rise from 13.8% to 15%, and the threshold for employer NICs will decrease from £9,100 to £5,000.

Supply-side policy

• 🔹 Post-Brexit Freeports: UK launched 8 freeports in 2021 to encourage investment and regional productivity (market-based supply-side).

• 🔹 Apprenticeship Levy (2017): employers who earn over £3 million annually to contribute 0.5% to apprenticeship training – aims to improve human capital (interventionist supply-side).

Exchange rate

Trade Policy / Exchange Rate Context

• Post-Brexit 2016: GBP fell ~15% vs USD – made exports cheaper, boosted net exports temporarily (affects AD and trade balance).