Economic Analysis: Causes of Changes in UK GDP Since 2008 - Economics

This essay examines the factors that have influenced the United Kingdom's Gross Domestic Product (GDP) since 2008, a period marked by significant economic events. It begins by highlighting the impact of the 2008 global economic recession, which caused a sharp decline in the UK's GDP. Subsequently, the essay analyzes the recovery phase, noting the role of increased investment in physical capital, technological advancements, and monetary policies in stimulating economic growth. The analysis then shifts to the effects of Brexit, the UK's decision to withdraw from the European Union, which led to uncertainty and a decline in foreign investment, business closures, and increased unemployment, ultimately contributing to a slowdown in GDP growth. The essay concludes by summarizing the two distinct phases of the UK's economic trajectory since 2008: an initial period of recovery and growth, followed by a period of decline attributed to the economic consequences of Brexit. The paper references various sources to support its analysis of the UK's economic performance.

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CAUSES OF CHANGES IN UK GDP SINCE 2008
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Introduction
Among the economic output measures adopted widely by the economists in compiling
the overall progress in an economy, Gross Domestic Product which is commonly known as the
GDP of a country is the most widely used measure. It is basically the total value of all goods and
services produced in a country within a specific time; quarterly, monthly or annually. The GDP
of a country gives an accurate size of its economy while the GDP growth rate is an indicator of
the economic growth rate of a country (Anderton, 2008). The ability of GDP to give the overall
picture of an economy has been likened with that of a satellite in space that surveys the weather
conditions of an entire continent. GDP statistics are used by the policymakers and central banks
in judging the state of an economy. Through its measurements, an economy is said to be
contracting or expanding and necessary measures than can be taken to boost it or restraint in
response to threats such as recessions and inflation looms. Just like the other world economies,
the 2008 world economic recession saw the long term trend in the economic growth of the UK
being decline. Since then, the GDP of UK has undergone periods of growth and decline (Dhingra
et al, 2016).

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(Brewer et al, 2007)
As portrayed in the chart above, the great economic crisis of 2008 saw the GDP of UK
drop from its 2.4% rate in 2007 to -0.5%. Mainly, this came as a result of business interruptions
which followed the crisis and loss of property. In the UK the impacts of this crisis were so
severe to an extent that the decline of GDP continued further to reach -4.2% in 2009 (Brewer et
al, 2007). This is because the country had suffered a lot of loss as a result of this crisis.
Thereafter, the GDP began to rise slowly following the stability in the world economy. Business
organizations began embarking on measures to recover from the downturn. The government, on
the other hand, enacted some measures to enable the economy to recover from the crisis.

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Encouraging increased investment in the physical capital saw the GDP growth rise from -
4.2% as recorded in the year 2009 to 1.7% in 2010. After the global economic crisis whose
impacts were highly severe in the UK economy just like it was in the other developed
economies, the country has greatly increased investment in its physical capital investments such
as machinery, factories, and roads with an aim of lowering the cost of its major economic
activities (Thomas, Hills and Dimsdale, 2010). Its revived factories and machinery have made
the economy more productive compared to some few years back when it relied mainly on
physical labor. The investment in advanced production approaches especially the use of
machines in farming has seen the country increase its productivity and cut the cost of production.
This approach has largely borrowed from the Solow’s growth model that came into existence late
1950’s to model the complexity of physical capital in the production process. It is comprised of
two equations: the first equation is the production function which presents capital and labor as
important ingredients in creating output for a country (Chung and Thewissen, 2011, p.360). In
the model, Solow stipulated that production of goods needed workers as well as effective tools to
be accomplished efficiently. The robust highway systems as a result of advanced machines have
therefore reduced the inefficiencies in production and moving raw materials and finished goods
across the country which has resulted into an increased GDP.
Leveraging on technology also played a major role in the rise of GDP from the -4.2%
mark as recorded in 2009 to 1.7% in 2010. Although the investment in the capital has been a
major approach in the economy of UK to increase productivity, increasing the quality of that
capital has also played a major role in ensuring economic growth (Hördahl and King, 2008). The
main approach which has been used to improve the quality of capital in the country is through
technological advancement, the fruit of research and development. Technological advancement

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has enabled the country to increase production in a given unit of labor across the country. This
increase has been contrasted to the one created by enlarging the capital expenditure alone.
Technological progress has come about through both innovations and inventions. Through this
approach, the overall productivity increased within the country and hence sustaining the
country’s GDP (Wilson and Purushothaman, 2003, p.1).
Through monitory policy to stimulate the economic growth, the government of UK
sustained its interest rates at the 0.5% which highly encouraged foreign investors into the
country. This crucial step came with so many economic benefits and which saw the GDP of the
UK continue expanding. For instance, foreign investment encouraged employment creation
which saw the unemployment rates reduce and infrastructure grows hence opening the country
into more investment opportunities (Korotayev and Tsirel, 2010, p.12). Also, the government
revenue increased as a result of foreign investments which were flowing into the country and
hence its expenditure as well increased to continue promoting economic growth.
After the six years of sustainable growth, things came into a standstill in 2016 following
the Brexit report. Brexit is an abbreviation for “British Exit” and which is used to denote the
UK’s 2016 decision to withdraw its membership in the European Union. Although it was a
decision which the country did not anticipate to come along with such kind of consequences, it
really hit the country’s GDP hard. From its 2.3% level in 2015, the tension resulting from this
announcement saw the rate drop down to 1.9% and has kept dropping henceforth (Ziv et al,
2018, p.490).
First of all, the announcement saw the country’s attractiveness to foreign investments
highly drop because investors are afraid that they will be taking a lot of risk on their shoulders by
investing in this country. Considering the fact that investments are the main triggers to economic

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growth through creation of employment opportunities, the GDP has continued to drop because
the numbers of foreign investments have continually declined (Lawless and Morgenroth,
2019,p.10). Additionally, the number of businesses organizations has continued to close down in
anticipation for what may happen come 2019 when the country will be exiting the trade union
and that as well has seen many people lose their jobs hence increasing the unemployment rates
(Baker, Ali and Thrasher, 2016).
Some of the EU members have already started retaliating on the UK’s announcement
which has been taken as a protectionist approach. For that matter, UK’s imports from some of
the trade union member countries have now become highly expensive due to the increased
interest rates. This has seen many companies which depend on imported products deteriorate
because of the increasing operational costs and resolved on reducing workers and that has seen
unemployment rates continue to increase than expected (Wright, 2016). The increasing
unemployment rates as a result of reduced investments and shutdown of some of the existing
companies in fear of what might happen when the country officially quits the trade union in 2019
have highly contributed to the declining trend of UK’s GDP growth.
Conclusion
In summary, this paper has scrutinized the economic progress of UK from 2008 when the
country was hit by the universal economic crisis just like the other developing economies. From
what has come out from the scrutiny, the GDP growth of UK has undergone two phases after the
recovery from the crisis and which are; a period of positive growth which has been followed by a
period of declining GDP (Hix, 2018, p.15). The first phase has been attributed to the combined
efforts of both business organizations and those of government to revive the economy back to its

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initial growth rate. The phase has been characterized by efforts such as encouraging investments
on physical capital to increase the average productivity of the country’s economy, leveraging on
technology to increase the quality of the country’s output in the global markets in order for its
exports to be competitive in the global markets and lastly, the maintenance of the country’s
interest rates at low rates in order to attract foreign investments which would see the
unemployment rates within the country reduced (Kreindler, Gilbert and Zimbron, 2016, p.530).
The second phase is the phase of declining GDP growth rates which has been attributed to the
Brexit effect of 2016. The country’s announcement to withdraw its EU membership brought
about suspicion to foreign investors who saw investing in the country as taking high risks on
their shoulders. Some of the existing investors on the other had resolved to quit in anticipation
for what would happen in 2019 when the country will be officially expected to quit the trade
union.
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