The UK’s economy is among the largest in the world, ranking tenth in terms of GDP (PPP) in 2014 (IMF, April 2015). For three decades after World War II, it was in decline relative to other industrialised democracies, especially in the 1970s when there was very high inflation, ending in the recession of the early 1980s.
However, during the 1980s the Conservative government managed to arrest this decline and GDP growth averaged 3.0 per cent in that decade, one of the highest OECD rates, despite the slowdown at the end of the decade when the country was in recession again. During the 1990s growth averaged 2.5 per cent p.a. and exports remained strong.
Interest rate policy was surrendered by the Treasury to the Bank of England in 1997 soon after Labour came to power.
Growth continued into the 2000s, despite the global slowdown in 2001–02, the very serious outbreak of foot and mouth disease in February 2001, and the impact of the terrorist attacks in the USA in September 2001 on air travel and tourism industries. GDP grew by 2.7 per cent p.a. over 2003–07, while inflation remained at no more than three per cent p.a.
From the second half of 2007 the country was increasingly affected by the global credit crunch, the resulting turmoil in financial markets throughout the world, high and volatile energy prices, and from 2008 the global economic downturn.
The then government and Bank of England moved during 2007–09 to prevent recession becoming depression. They initiated measures to stimulate the economy and to rescue financial institutions that were failing following the collapse of the sub-prime mortgage sector in the USA and consequent cessation of inter-bank lending.
The economy stalled during 2008, plunging into recession in the autumn, recording a contraction of 0.8 per cent for that year and a further 4.3 per cent in 2009. In 2010 the new government launched its five-year programme of public spending cuts aimed at eliminating the budget deficit. GDP growth was 1.9 per cent in 2010, but then slowed to 1.6 per cent in 2011 and 0.7 per cent in 2012. From 2012/13 the economy began to recover, growing by 1.7 per cent in 2013 and an estimated 2.6 per cent in 2014. Unemployment rose rapidly from 5.5 per cent in 2008 to 8.4 per cent in 2011, but then fell to 5.8 per cent by November 2014. However, the deficit persisted and a new programme of spending cuts was to be initiated from 2015.