ECONOMICS FOR GLOBAL BUSINESS
Question (Part A)
How successful have the British Government and the Bank of England been in running the British Economy over the last 2 years?
This essay will demonstrate the measures of success that the British Government and Bank of England have delivered for the periods of 2010 and 2011. In order to achieve this outcome it was first necessary to briefly describe some background to how the Bank of England became so involved and how their input has had a direct affect on inflation and interest rates, which are two measurable indicators used in business and economics. In terms of measuring success it was also necessary to compare and contrast other European countries economic performance over the same period. This approach was chosen, as there needed to be some sort of comparison to make any comments meaningful. Measuring year on year in isolation would show and provide information but as the UK is part of the European Union it was important to measure the UK performance against other similar economies.
Control of setting interests rates became the responsibility of the Bank of England on 6th May 1997 (BBC Homepage 1997) when Prime Minister Tony Blair announced the Banks independence from political control. The governor of the Bank of England, Mr Eddie George stated at a press conference that day that he “wanted to set in place a long-term framework for economic prosperity” which would “break from the boom bust economics of previous years.” This was a very important and bold change in how the UK had managed its finance for hundreds of years, where previously the chancellor of the exchequer would meet with the Bank of England governor and both sets of advisors and agree interest rates together. The German economy had been run for some time successfully by their Bundesbank, the equivalent of the Bank of England and they had helped to make Germany an economic superpower in Europe. This was the model that was adopted by the UK.
The years 2010 and 2011
The Bank of England had two main targets to achieve after the financial collapse of 2007 and 2008. Their responsibility was to set base interest rates and also to influence the supply of money – which in the years of 2010 and 2011 actually meant the increase to the supply of money through a system known as Quantitative Easing. Quantitative Easing is the process of pumping money into the economy and according to a report in 2009 from the BBC “Lower interest rates encourage people to spend, not save. But when interest rates can go no lower, a central bank's only opt...