The Impact of Global Financial Crisis on the United Kingdom Essay Example
The impact of global financial crisis on the United Kingdom
Introduction
This report will examine the affects of the global financial crisis, which was a result of the collapse of the sub-prime mortgage market in the United States, on the UK economy. First of all, it will look at the background of the global financial crisis. Secondly, this paper will analyses why the UK economy has been influenced by the global financial crisis, what effects of the financial crisis on the United Kingdom have been, especially labour market. Lastly, brief conclusions will be drawn and a number of recommendations will be made.
* Outline
Financial crisis is a sharp deterioration of a group of financial indicators, such as business and financial institutions bankruptcy rates, short-term interest rates and asset prices. There is no precise definition of financial crisis. Jickling (2008) gave a common view that ‘disruptions in financial markets rise to the level of a crisis when the flow of credit to households and businesses is constrained and the real economy of goods and services is adversely affected.’
When it comes to the global financial crisis of 2007-2008, it is well known that the main cause of the credit crunch of 2007, the whole global financial structure crashing down in 2008 and the recession of 2009 was the US sub-prime mortgage crisis. Sub-prime loans involved making high-risk loans to applicants with poor or non-existent credit histories. Sub-prime loans’ origin was the Community Reinvestment Act (CRA), which President Jimmy Carter signed on 13 October 1977 (Booth, 2009, p. 53). It imposed an obligation on banks to provide mortgages to everyone and listed a number of criteria and a number of compliance measures, so that low-income families would not be simply refused by banks (Gamble, 2009, p. 21). It was seen as a way of promotion of home ownership for minorities. In 1992 the Federal Reserve Bank of Boston advised lenders that a mortgage applicant’s lack of
Introduction
This report will examine the affects of the global financial crisis, which was a result of the collapse of the sub-prime mortgage market in the United States, on the UK economy. First of all, it will look at the background of the global financial crisis. Secondly, this paper will analyses why the UK economy has been influenced by the global financial crisis, what effects of the financial crisis on the United Kingdom have been, especially labour market. Lastly, brief conclusions will be drawn and a number of recommendations will be made.
* Outline
Financial crisis is a sharp deterioration of a group of financial indicators, such as business and financial institutions bankruptcy rates, short-term interest rates and asset prices. There is no precise definition of financial crisis. Jickling (2008) gave a common view that ‘disruptions in financial markets rise to the level of a crisis when the flow of credit to households and businesses is constrained and the real economy of goods and services is adversely affected.’
When it comes to the global financial crisis of 2007-2008, it is well known that the main cause of the credit crunch of 2007, the whole global financial structure crashing down in 2008 and the recession of 2009 was the US sub-prime mortgage crisis. Sub-prime loans involved making high-risk loans to applicants with poor or non-existent credit histories. Sub-prime loans’ origin was the Community Reinvestment Act (CRA), which President Jimmy Carter signed on 13 October 1977 (Booth, 2009, p. 53). It imposed an obligation on banks to provide mortgages to everyone and listed a number of criteria and a number of compliance measures, so that low-income families would not be simply refused by banks (Gamble, 2009, p. 21). It was seen as a way of promotion of home ownership for minorities. In 1992 the Federal Reserve Bank of Boston advised lenders that a mortgage applicant’s lack of