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How the UK economy weathered the financial storm

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  • Sentance, Andrew
  • Taylor, Mark P.
  • Wieladek, Tomasz

Abstract

Prior to the global financial crisis of 2008, the UK had the largest banking sector asset to GDP ratio among large countries, and had experienced rapid real property price increases as well as a persistent current account deficit in the preceding decade. These factors, together with its role as an international financial centre, made the UK economy particularly vulnerable to the onset of the global financial crisis. Although the initial drop in real GDP was steep, we provide evidence that the economy has weathered the financial storm better than many feared, and has fared no worse than its peer group of major economies. In this paper we assess the reasons underlying this outcome, including the possibility of exaggerated vulnerabilities, global economic recovery, the flexible supply side of the UK economy, as well as fiscal, financial and monetary policy interventions. Our analysis suggests that all of these factors played a role in cushioning the impact on the UK real economy, leading to a more benign outcome than most observers expected.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 1 ()
Pages: 102-123

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:1:p:102-123

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: International finance; Monetary economics; Financial crisis;

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References

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  1. Gamberoni, Elisa & von Uexkull, Erik & Weber, Sebastian, 2010. "The role of openness and labour market institutions for employment dynamics during economic crises," ILO Working Papers 461897, International Labour Organization.
  2. Nicoletta Batini & Kenny Turnbull, 2000. "Monetary Conditions Indices for the UK: A Survey," Discussion Papers 01, Monetary Policy Committee Unit, Bank of England.
  3. Faust, Jon & Rogers, John H & Wright, Jonathan H, 2005. "News and Noise in G-7 GDP Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 403-19, June.
  4. Domenico Giannone & Michèle Lenza & Lucrezia Reichlin, 2010. "Market Freedom and the Global Recession," Working Papers ECARES ECARES 2010-020, ULB -- Universite Libre de Bruxelles.
  5. Kubelec, Chris & Sa, Filipa, 2010. "The geographical composition of national external balance sheets: 1980-2005," Bank of England working papers 384, Bank of England.
  6. Hyun Song Shin, 2009. "Reflections on Northern Rock: The Bank Run That Heralded the Global Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 101-19, Winter.
  7. Joyce, Michael & Lasaosa, Ana & Stevens , Ibrahim & Tong, Matthew, 2010. "The financial market impact of quantitative easing," Bank of England working papers 393, Bank of England.
  8. Luca Benati, 2008. "The "Great Moderation" in the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 121-147, 02.
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Cited by:
  1. Dwyer, Gerald P. & Lothian, James R., 2012. "International and historical dimensions of the financial crisis of 2007 and 2008," Journal of International Money and Finance, Elsevier, vol. 31(1), pages 1-9.

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