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Anal-ysing the current economic environment :money_with_wings: :moneybag: …
Anal-ysing the current economic environment
:money_with_wings: :moneybag:
i took the wok to poland :panda_face:
Taxation
Liz Truss has cut the top rate of tax meaning there is no 45% for people earning over 150 000. This was done so that more wealthy businessmen move to the UK however has received big backlash as we are currently going through a cost of living crisis
Exchange Rates
Exchange Rates is the value of currency for the purpose of conversion for the other. Currently, the sterling has fallen massively due to a decrease in trust for the UK government with its plans to take on huge amounts of debt.
GDP
Gross Domestic product - a measure of the value of all the economic activity that takes place in an economy over a particular period of time
Includes consumer spending, business investments and government spending
Economy is growing if GDP is rising/ economy is contracting of GDP is falling
Compared to the pre-pandemic level, UK GDP in Q2 2022 was 0.2% lower (this figure was recently revised lower). This compares with Eurozone GDP being 1.8% higher than its pre-pandemic level, while US GDP was 3.5% higher.
% change of GDP is known as rate of economic growth
Inflation
Inflation is the general increase in price of goods and services, it can be measured as either CPI (consumer price index) or RPI (retail price). The CPI rose 9.9% in the lading 12 months to August 2022. A high inflation rate means the cost of living increases, which is a major problem now. The high inflation rate is usually caused by an increased price in raw materials or higher wages or even potentially a low interest rate. The higher inflation means people will be spending less which can lead to lower prices counteracting inflation.
Fiscal and monetary policy
Monetary policy involves changing the interest rate and influencing the money supply.
Fiscal policy involves the government changing tax rates and levels of government spending to influence aggregate demand in the economy.
Pension funds
The UK pensions industry has been in a dash for cash to avoid a fresh liquidity crisis if there is a repeat of the chaotic moves in the gilt market caused by chancellor Kwasi Kwarteng’s package of unfunded tax cuts in his September 23 “mini” Budget.
Gilts and bonds
BofE has had to buy £65bn to ensure financial stability is maintained to some extent.
Links to pension fund trouble as the value and yields of bonds changed. Happened after a dramatic rise in interest rates on long-dated UK government bonds in the days immediately after the chancellor’s mini-budget had triggered a “self-reinforcing” spiral in debt markets, putting the stability of Britain’s financial system at risk.