Unemployment Rate and Interest Rate

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Course ID

ECONOMICS1
Table of Contents
Introduction......................................................................................................................................2
Background and History..................................................................................................................2
Definitions.......................................................................................................................................4
Real GDP per Capita...................................................................................................................4
Growth rate of Real GDP per Capita...........................................................................................4
The inflation rate (%)...................................................................................................................5
The unemployment rate (%)........................................................................................................5
Interest rate..................................................................................................................................6
Five Year Average Predictions........................................................................................................6
Explanation of Predictions...............................................................................................................7
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

ECONOMICS2
Introduction
Predicting future is one of the import tasks for economists and policymakers. Policy
decision for future depends on correct prediction about major macro variables. There are few
major macroeconomic tools that government uses to analyze performance of an economy
(Oliver, 2019). The paper attempts to make prediction regarding some of the macro-economic
variables of United Kingdom. The selected macroeconomic indices for this purpose are Real
GDP per capita, Growth rate of Real GDP per Capita, Inflation Rate, Unemployment Rate and
Interest Rate. Each of these indicators has its significance to explain economic health of the
nation. The report first briefly discusses background of UK economy considering important facts
relevant for the economy. The second section gives definition of each of the selected
macroeconomic indicators and its implication for the economy. After discussing relevance of
each indicator, forecast has been made for next five years regarding likely performance of these
indicators.
Background and History
United Kingdom is known as a market oriented and highly developed nation. Going
internationally, the economy ranked sixth in world as per the measured gross domestic product.
The nation accounts nearly 3.3% of the world’s GDP. UK in 2016 was tenth largest exporters
and fifth largest imports of goods. Not only in terms of trade but also UK is interrelated to the
world economy with its inward and outward foreign direct investment. This has made UK one of
the most globalized nations in the world (Aliouche, 2015). The economy is dominated by the
service sector with the sector accounting 80 percent of nation’s GDP. The most important service
is financial service industry. London is considered as the second largest financial hub in the
world.

ECONOMICS3
UK during 18th century was the first nation to be industrialized and played a dominating
role in the world economy during 19th century. In 1870, UK accounted 9.1% of world’s GDP.
After that, the second industrial revolution took place in Germany and United State creating
several challenges for the economy. The economy however recovered all the challenges and
remains one of the powerful economies in the world in the twenty first century.
In 2018, nominal GDP of UK was $2.828 trillion. The PPP adjusted GDP during the
same time was $3.038 trillion. GDP growth of the economy in 2018 was 1.4 percent. Economic
growth however has slowed down to 1.2 percent in the second quarter of 2019. Per capita
nominal GDP in 2018 was recorded to be $42,580 in 2018 which is 20th in the world. Rate of
inflation is current recorded to be 1.8% compared to 2.5% in 2018. The last recorded
unemployment rate for UK is 3.8%.
In the second quarter of 2008, UK entered a recession originated from global financial
crisis. The economy was highly vulnerable to the crisis as it is highly dependent on its financial
sector. For boosting economic recovery from the crisis Bank of England adapted the strategy of
quantitative easing and lowered the interest rate to the lowest level of 0.5 percent (Obstfeld,
2016). It took several years for UK to recover the crisis with major challenge was coming from
increasing household debt. The economy again has again experienced an instability because of
its decision to leave European Union followed by the referendum in June 2016 (Bodenstein,
Guerrieri & LaBriola, 2019). Brexit has brought significant uncertainty for UK’s trade and
business activities hampering economic performance of the nation.