During the 1970s. The UK economy had relatively high inflation rates compared with EU trading partners; in the 1980s. inflation receded (not counting its surge at the end of the decade of 1989-1990) as a result of a qualitative change in the entire economic situation in the country (government policies of Thatcher). Low inflation was typical of the British economy throughout the 1990s, when consumer price growth was perhaps the slowest among EU members (Figure 10.2).
The data in Fig. 10.2 quite convincingly illustrate the fact that inflation in the UK over the last 30 years (since the early 1980s) is under strict control.
Source: according to the European Economy, 1995, 1999, 2001-2010.
Fig. 10.2. Indicators of inflation in the UK and EU countries (growth in consumer prices), 1970-2010
Consumption and savings
Consumer spending is by far the largest share of total UK spending, and they occupy a proportionately larger share in total national spending than in other EU countries except Greece. The share of consumer spending in GDP was in the early 1980s. 60% and then slowly rose to 64% in the mid-1990s, to 68% in 2007. This trend is partly due to the increase in personal income (mainly wages); This was facilitated by a decrease in the income tax rate, which accounted for a large share of income after tax withholding.
The growth in consumer spending was accompanied by a steady drop in the personal savings level (excluding the percentage of personal disposable income). The level of personal savings fell sharply from 14% (1980) to 4% in 1990, reflecting the expansion of the volume of the loan, due to the removal of monetary constraints and the expected low inflation rates (households need less replenishment when inflation is at low levels and does not "eat up" savings.However, in the 1990s and the first decade of the 21st century, the level of savings tended to increase (6.7% in 2003-2008) as a result of the growth of personal incomes of the active part of the population.
In recent decades, in the UK (as in the US) there has been an intensive rise in prices for residential real estate. Compared to other EU member states, the country in question has a large share (almost 70%) of households owned by owners, whose incentives for lending have been encouraged by such measures as exemption from interest and mortgage tax and an increase in the market value of capital. Since homeowners are really considering a significant increase in the price of the underlying asset as an opportunity to generate income, their logical response was the use of this asset as a guarantee of repayable loans needed to finance the costs of real estate and other purposes. This explains why consumer spending for the period 1984-1990. grew faster than personal disposable income, contributing in certain periods "overheating" economy.
However, in the 1990's. the economic situation has changed. The deflationary measures (higher interest rates) had a significant impact on the real estate market: due to the continuous drop in property prices, many homeowners faced the problem of a negative asset when the value of real estate was lower than the outstanding mortgage on this property in 1996, it affected 750,000 households in England). Continuous decline in the value of assets, along with uncertainty in employment, led to the unwillingness of the consumer to spend money, which affected the trend in the level of personal savings, from 1990 to the global crisis of the end of the decade (2008-2010). In general, the share of aggregate savings in GDP has been relatively stable over the past decades. Until the middle of 2008, the savings rate in the UK corresponded to this indicator in the US, but was significantly lower than in other leading economic powers, including the EU countries, accounting for only two-thirds of the average value of savings in the Union.
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