Causes and effects of recession in uk Free Essay Example, 1500 words

This helped to accelerate the recession of the country. One of the factors that kept the economy of the UK booming was credit. However, with the uncertainty and the atmosphere of decreasing confidence banks stopped lending to one another both locally and even on the international scene. This led to a financial freeze. Prior to this many banks in the UK have contributed to sub primed investments and had to lose substantial amounts of funds. Another cause of the UK recession is the housing crisis that has been affecting the country in recent times. In September 2008 it has been reported that the United Kingdom has seen the worst housing crisis in thirty years. As banks tried to beat the problem of inflation one way of trying to restrict their capital is by restricting supplies of home loans. Since the housing crisis of 1993, 2008 saw the lowest number of new mortgages. Described as a drought by the Tribune Business News the low numbers were blamed on marked hardening in bank lending policies amid a world financial freeze. Inflation is also a contributing factor to recession in the UK. We will write a custom essay sample on Causes and effects of recession in uk or any topic specifically for you Only $17.96 $11.86/pageorder now In 2008 the Office of National Statistics reported that consumer price inflation rose to 4.7 per cent in August of the same year. This was attributed to the sharp increases in gas and electricity bills. This prompted a letter from the governor of Bank of England, Mervyn King to Chancellor of the Exchequer, Alistair Darling. He outlined that the high cost of food among other amenities have pushed the inflation to its highest rate in sixteen years. After the UK government announced a bail out plan in January 2009 the shares in banks sharply decreased. The second largest bank of the UK, the Royal Bank of Scotland went down to sixty seven percent and was described as been the lowest in the last twenty five years. The UK recession can be partially blamed on international events and situations. As the world becomes a large market place any negative action that takes place with large trading partners and in this case rich industrialized countries such as t he USA is bound to ricochet in other countries. There are steps, however, that all countries can put into place to minimize the effects of financial downturns. Unfavourable government policies have been described as possible contributory factors to recession in the UK. The ruling government, however, refused to take the blame for contributing to the recession and blamed it instead on global crises. The BBC quoted Prime Minister Gordon Brown that "Every recession in the last sixty years in Britain has been caused by inflation and has been domestically generated, " he said.