Inflation is an economic indicator in its own right. The current RPIX is currently 2.5% and like many other indicators has been stable for some time and is forecasted to do so over the coming years.
Running alongside Monetary policy is Fiscal Policy. This policy involves making deliberate changes in government expenditure and income in order to meet economic objectives. The Government imposes taxes on certain goods in order to make these changes. By placing high taxes on demerit goods i.e. alcohol and tobacco, the government aims to reduce the demand because they are deemed damaging to individuals and workforces. However, these goods are actually in-elastic because the consumers who use them very often feel they need to use them, resulting in them purchasing them anyway. This therefore generates more money for the economy.
Another reason for increasing taxes is to discourage imports and encourage exports. However, with the pound being strong, the UK's chances of exporting are lessened, which results in the reduction of the GDP. The Office for National Statistics said that the UK imported $4.4bn worth of goods more than it exported in November 2003. There could be numerous reasons for this, including the declining value of the dollar which inevitably hurts UK exports to America.
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The Likely Progress of the Business Cycle Over the Next Two to Three Years .
By looking more closely at the indicators discussed above and considering the position of the global economy, it is possible to make a judgement as to where the UK economy is in terms of the business cycle. It is then possible to plot the likely progress of the economy. .
The UK is the world's fourth largest economy and has weathered the recent economic downturn better than any other G8 country. The Government's economic strategy aims to improve growth and employment by creating economic stability based on low inflation and prudent government borrowing.