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How the UK economy weathered the financial storm

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

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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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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  1. 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.
  2. Jon Faust & John H. Rogers & Jonathan H. Wright, 2000. "News and noise in G-7 GDP announcements," International Finance Discussion Papers 690, Board of Governors of the Federal Reserve System (U.S.).
  3. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2010. "Market freedom and the global recession," CEPR Discussion Papers 7884, C.E.P.R. Discussion Papers.
  4. Gamberoni, Elisa & Von Uexkull, Erik & Weber, Sebastian, 2010. "The Roles of Openness and Labor Market Institutions for Employment Dynamics during Economic Crises," World Bank - Economic Premise, The World Bank, issue 29, pages 1-5, August.
  5. Nicoletta Batini & Kenny Turnbull, 2000. "Monetary Conditions Indices for the UK: A Survey," Discussion Papers 01, Monetary Policy Committee Unit, Bank of England.
  6. Benati, Luca, 2007. "The ‘Great Moderation’ in the United Kingdom," Working Paper Series 0769, European Central Bank.
  7. Kubelec, Chris & Sa, Filipa, 2010. "The geographical composition of national external balance sheets: 1980-2005," Bank of England working papers 384, Bank of England.
  8. 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.
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