The 2008 Financial Crisis
This crisis started in 2007 when the subprime lending bubble in America burst. This caused a domino effect, with financial institutions going bankrupt and pulling back credit. Due to this, many businesses had to close their doors as they couldn't afford to operate any longer. By 2008, there was a worldwide recession and many countries were suffering economically. Countries such as China and Russia decided to use protectionist policies such as higher tariffs on imports to protect their domestic industries from foreign competition.
Government austerity measures
The United Kingdom's economy has suffered greatly as a result of government austerity measures. Austerity measures are meant to control public spending and reduce debt by raising taxes, reducing government spending, or both. These measures have not only led to a decline in the standard of living in many households, but also to increased unemployment rates. The United Kingdom's credit rating was reduced from AAA to AA+ in 2013 and the nation is now considered to be at high risk of defaulting on its debts. As such, it will face higher borrowing costs. Low growth prospects: In 2015, GDP grew at a rate of 2%. With this growth, it would take until 2060 for GDP per capita to reach pre-crisis levels. Brexit has put further pressure on the economy; with most economists predicting lower growth in 2018 than in 2017 - one major reason being that investment decisions have been postponed due to uncertainty over how Brexit will affect trade flows between the European Union (EU) and Britain.
The British Pound reached an all-time low against the US Dollar after news emerged that Prime Minister Theresa May had called an election for June 8th.
The decline of manufacturing
Economists have been trying to determine why the UK has tumbled down the world economic rankings. One explanation is that manufacturing has declined, with a lot of jobs lost in this sector. As a result, there are fewer opportunities for people to earn money and this makes it more difficult for them to get out of poverty. When these people also lose their homes they become homeless and so they need help from charities. The decline in manufacturing is one reason why economists believe that we have seen such a dramatic rise in poverty rates in recent years. Manufacturing jobs pay well, and when someone loses theirs then they can struggle to provide for themselves or their family. But with higher unemployment comes higher crime rates as well as poor health because many don't have the resources to access proper care. There's a direct correlation between GDP growth and population happiness; our rapidly declining GDP is making everyone much unhappier than before.
The Brexit Vote
In June 2016, Britain voted to leave the European Union. The Brexit vote sent shockwaves around the world, and many expected a drop in the UK's economic ranking. A new report shows that it has fallen from second to fifth place, just behind France and ahead of India. How did this happen, and what does it mean for Europe's future? There are three key areas of concern: global competitiveness, structural reforms, and governance
- Global Competitiveness: The UK was ranked the 6th most competitive economy before leaving the EU. Since then, it fell five places. It faces higher trade barriers than other economies due to its decision to leave the customs union.
- Structural Reforms: Leaving the EU comes with increased pressure on public services such as healthcare and education as well as under-funded pension systems
- Governance: Citizens who voted in favor of leaving were more likely to be older than those who opposed leaving
Increasing inequality
There are several reasons why the UK fell down the world rankings. One is increasing inequality, with real wages not keeping pace with inflation. Another is weak productivity growth, which has been an issue in recent years. The problems are compounded by a lack of investment in innovation and skills and a worsening trade balance. The result is that more people work in low-skilled jobs that pay below-average wages and it becomes more difficult to escape poverty.
There was also a decline in public services including healthcare, schools, and housing for those on lower incomes, so there are now 20 percent more people living in poverty than there were 20 years ago.
The government's welfare reforms have exacerbated this trend by cutting social security benefits for those on lower incomes while at the same time cutting taxes for the wealthiest 10 percent of households.
As well as hurting families on lower incomes, this has damaged public finances because welfare spending now accounts for around 25 percent of total government expenditure compared to just 9 percent two decades ago.
The housing crisis
The United Kingdom's economic woes can be traced back to 2008 when a housing bubble burst in America and the world entered into a severe recession. The United Kingdom was among those worst affected by this crisis as house prices plummeted and employment opportunities dried up. In response to these conditions, new Prime Minister David Cameron introduced austerity measures that have stifled economic growth and worsened unemployment rates in Britain. A report from the London School of Economics estimates that if current trends continue, then by 2020 the United Kingdom will drop from 4th to 7th place on the list of wealthiest nations in terms of GDP per capita.
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