Managerial Economics: Growth Rate, Impact on Housing in London, and GDP Doubling in UK

This report analyzes the growth rate of GDP in the United Kingdom, the impact of economic shocks on housing demand and supply in London, and the time it takes for GDP to double in the UK. It also compares the growth rate of the UK economy with that of London. The report provides insights into the economic climate of the UK and its implications for decision-making.

MANAGERIAL ECONOMICS

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
TASK 1............................................................................................................................................1
Growth rate of GDP in United Kingdom for same period..........................................................1
TASK 2............................................................................................................................................2
Comparing the growth rate of economic environment of UK with the London.........................2
TASK 3............................................................................................................................................4
Describing how the following shock impact the demand and supply of housing in London......4
TASK 4............................................................................................................................................5
Describing why apartments become more affordable in early 1990’s........................................5
TASK 5............................................................................................................................................6
How long should it take for GDP to doubled in UK...................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUTION
Economics helps the business in making effective decisions. Economics provide for the
study the decisions related to the demand and supply influencing the wages, price and
availability of goods and services. Economic factors are to be considered by every business in
their decision making process. Managers for making decision related to the growth aspects
require assessing the economic influences of the country. The forces of demand and supply are
essential to be analysed for making prediction about the future income and expenditures. Present
report reveals about the economic climate of United Kingdom. The economy of UK has been
fluctuating over the years. It will be assess the growth in percentage and long run growth rate
during the period of 10 year. it will provide about the theoretical aspects of demand and supply
and their effects on housing in London. It will also provide about the demand and supply
frameworks for the apartments in London. It will analyse the economic aspects related to the
residential ascpects and housing prices in London and growth rate of UK.
TASK 1
Growth rate of GDP in United Kingdom for same period
Year Real GDP per capita
(US Dollars)
Growth Rate
(Percentage)
=(GDP in year 2
/ GDP in year
1) -1
1985 20073 ------
1986 20830 3.77%
1987 21734 4.34%
1988 22783 4.83%
1989 23237 1.99%
1990 23352 0.49%
1991 22947 -1.73%
1992 22922 -0.11%
1993 23379 1.99%
1994 24317 4.01%
1995 24987 2.76%
Analysis
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From the above table with the growth rate of GDP for the earlier 90s and after 90s it
could be evaluated that the economy showed fluctuating trend. In the period from 1985 to 1990
there were fluctuation seen in the economic environment. It could be seen that economy during
1987 and 1988 showed the highest growth rate. It was the period where the economy was
performing excellently well. At this period country received foreign direct investment of various
countries due to its stable economy and political influences. This provided the attraction to many
large industrialist to shift their offices in United Kingdom (Carvalho and Fankhauser, 2017). It
helped the economy to grow considerable and the rate of growth was maintained for 2 years
only. In 1989 country suffered significant decline. The slowing growth was seen due to the
political intervention to control the real estate market of country. Also other industries were
affected due to the entrance of new firms in the company. This caused the economy to fall with
significant rate.
From the year economy of UK faced continuous decline in the GDP growth rate till year
1992. Economy marked its record low growth rate in 1991 with -1.73%. This was the phase
where economy of the country was facing critical times. Seeing the declining growth rate
government reframed its policies and liberalised the terns regarding the real estate investments.
The impact was seen in all the industrial sector of the country and various companies showed
declining growth with very low or no profits. There was increased for the government to
restructure the regulations for boosting the economy. From the year 1993 the positive results
were seen due to the revamping policies of the government. The growth rate increased to 4.01%
by 1994 as industries began to revive and returned back to profitable stage (Gudgin and
Buchanan and et.al., 2018). This boosted the economy with the growth in every industrial sector
by the business. Prices of the properties began rising, traffic of the new industries increased and
restaurants started showing profits.
TASK 2
Comparing the growth rate of economic environment of UK with the London.
Year Growth Rate
1985
1986 3.77%
1987 4.34%
1988 4.83%
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1989 1.99%
1990 0.49%
1991 -1.73%
1992 -0.11%
1993 1.99%
1994 4.01%
1995 2.76%
The economy of London and UK grow at different rates. Economy of London
contributes the major proportion of the whole economy of UK. Most of the industrialists and
investors shift their move towards London due to the more stable economy as compared with
other regions of UK. It brought investments of large amount in different industrial sector. Major
investments were seen in the real estate industry. This lifted the property prices to go up
considerably making the economy of London and UK to rise at considerable growth. Though the
whole of the economy of UK was striving for having stable economic growth during this period
the economic environment of London was the most stable as compared with other regions of UK.
Restructuring the residential housing norms of London helped the UK economy to revive and
return back to considerable growth rate (Plotnikov and et.al., 2018). It is still the centre of
attraction for various investors and significant investments are being made in the housing
industry. Prices of apartment in London are rising at constant rate. They have reached so high
that the Locals of London are not able to afford to buy a house.
Long run growth is defined as sustainable increase in quantity of the goods or services
that is produced by the economy. It is measured as percentage rate change in real domestic
growth product. The growth rate of the economy during the year has been fluctuating with
considerable rise to 1994. The long run growth rate of the economy is represented in the below
graph that shows the economic growth rate over the period of ten years.
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1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Growth Rate
Growth Rate
TASK 3
Describing how the following shock impact the demand and supply of housing in London
Increase in income: One of the most affecting factor, such that rising income means that
people are able to afford to spend more on housing, this is clearly stated that it increase the
demand. During the economic period, demand for house in London is also increases and it also
tends to be luxury good. Thus, it can be stated that rise in income causes a high increase in
demand four housing in London (Factors that affect the demand and supply of Housing property
in London,2019). Also, demand for houses is also depend upon the consumer confidence, like if
people expect that prices to rise, then demand will also rise and that is why, demand for houses
rises faster than the income.
Decrease in mortgage interest rate: Interest rate is also plays an important role in the
demand and supply of the houses. Such that during the financial crisis in UK, consumer were
actually enjoying relatively low borrowing rates and that is why, banks are also began to offer
low rates on mortgage. As a result, people were encourage to relax their lending standards.
Hence, it can be stated that when there is a decrease in mortgage interest rate, then the demand of
houses in London is also increases. For instance, if a person earn £150,000 mortgage a 0.5%
change in the vase rent, then it will change the monthly payment about the £60 a month. Thus, it
is stated that small change in interest rate discourage the people from buying.
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In addition to this, when the interest rate is also reached in 15% in 1992, the demand for
housing is also collapsed and this cause a large fall in the demand for housing. Therefore, the
relatively low- interest rate of 1990 and 2000s is also encourage people to buy a new house and
in 2008-09 when the interest rate is cut by 0.5% which shows the interest rate is low and it affect
the demand and supply of housing (Albouy, Hurtado and Nafari, 2019).
Decrease in unemployment:Unemployment rate is also trigger low housing demand and
that is why, the demand curve shift downward. It is also stated that when there is decrease in the
unemployment rate, then the chances of demand of houses is increases, because when the supply
of the housing is the price of housing, then it will affect the demand in positive manner.
Competitive housing prices in other UK cities: From the secondary analysis, it is
analyzed that the houses in the cities are cheaper as compared to others. This shows that there is
a high competition in London as compared to UK cities (Schneider, 2019). Such that there are
many cities in UK which provide the houses at low price and that is why, it is stated that the city
has been the target for a huge regeneration and huge investment in recent many years. That is
why, there is low demand of houses in London because people shift towards cities in UK in order
to purchase houses at low price.
TASK 4
Describing why apartments become more affordable in early 1990’s
The biggest reason why the apartment are affordable in early 1990 is due to increase in
the interest rate of 15% and there is no control on inflation. Also, the crash in 1990 was largely
caused by the interest rates which is increases from 12% to 14% in between 1989 and 1991. This
is clearly stated that many homeowners who taken out the big mortgage could no longer afford
the repayments. As a result, there is a sudden drop of housing prices up to 35%. Thus, it is stated
that due to low interest rates and shortage of property are consider two main reason for driving
the house prices (French and et.al.,2018). Such that average earning has also contributed to
increase with employment generally stable, while unemployment falling. Therefore, it is examine
that this force people to increase the demand of houses in the UK, London.
Presenting why apartment prices increase by 1995
Before 1990, the flats are easily available, but after 1995, there is a sudden increase in the
price of the houses. This is due to number of factors such that lack of affordable housing and
increase in desire among millennial and baby boomers for flexibility. Hence, this is stated that
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these factor are contributing to grow the demand of rental properties. Also, after 1995, there is a
sudden increase in the population and that is why, the economy is also increases and this
increases the price of the houses in late 1995. On the other side, another major cause of the rise is
such that the banks have an ability to create money every time, so that they make a loan
(Hardingand et.al.,2018). Therefore, during this time, amount of money banks creates through
mortgage lending is more than multiplied. So, it is analyzed that there was a major driver of the
massive increase in house price and demand of these product is also affected.
Though 2010 was consider one of the weakest year for house price growth since 1990
because its prices are rose by 33% while in 1990 the property grow by 21%. Hence, regular flow
of money and increase in interest rate lead to increase the property prices by 1995 (Mulheirn,
2019).
TASK 5
How long should it take for GDP to doubled in UK
As per the growth rate of 1995 which is 2.76, this reflect that it takes around 4-5 years for
GDP to doubles in UK because there are some factors which affect these. Like, it takes long
investment amount for the properties and that is why, it takes huge time in order to increase the
GDP. Also, within these 4-5 years, there will be increase in the income and this in turn assist to
enhance the rate of GDP and the forecasting also state that within 5 years, the GDP will be
doubles in UK (Dianati, Zimmermann and Davies, 2018).
CONCLUSION
The above report has provided that economic forces are of great importance for decision
making purposes. A business for all its future activities and plans are required to analyse the
demand and supply forces associated with products and services produced by their company. It
has been analysed that the economy of UK has shown fluctuating trend before the 90s and
suffered significant downturn during this phase. However the measures of government helped in
boosting the economy of UK.
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REFERENCES
Books and Journals
Gudgin, G., and Buchanan and et.al., 2018. The macro-economic impact of Brexit: using the
CBR macro-economic model of the UK economy (UKMOD). Journal of Self-Governance
and Management Economics. 6(2). pp.7-49.
Carvalho, M. and Fankhauser, S., 2017. UK export opportunities in the low-carbon
economy. London: GRI.
Plotnikov, A.V., and et.al., 2018. Digital economy: data analysis on the context advertising
market in the UK and the US. International Journal of Civil Engineering and
Technology. 9(11). pp.2372-2382.
Albouy, D., Hurtado, C. and Nafari, K., 2019. Supply and Demand Responses to a Tax on Size
of Rental Housing: Theory and Evidence from Iran.
Schneider, M., 2019. Exploring supply and demand-driven imbalances in Austria’s housing
market. Monetary Policy & the Economy, (Q3/19), pp.54-71.
French, N. and et.al.,2018. Investment opportunities for student housing in Europe. Journal of
Property Investment & Finance.
Harding, A., and et.al.,2018. Supply-side review of the UK specialist housing market and why it
is failing older people. Housing, Care and Support.
Mulheirn, I., 2019. Tackling the UK housing crisis: is supply the answer. UK Collaborative
Centre for Housing Evidence.
Dianati, K., Zimmermann, N. and Davies, M., 2018, August. London’s Housing Crisis; A
perspective based on the role of financial markets and the UK’s economic growth model.
System Dynamics Society.
Online
Factors that affect the demand and supply of Housing property in London. 2019. [Online].
Available through: <https://www.economicshelp.org/blog/15390/housing/factors-
affecting-supply-and-demand-of-housing/>.
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