Macroeconomic Modelling
United Kingdom (UK)
Due on the 31st of March
Written by s4302666
, Table to content
Introduction...................................................................................................3
Economic overview of the UK Economy.....................................................3
Literature Review..........................................................................................4
Gross Fixed Capital Formation...................................................................4
Government Final Consumption Expenditure............................................4
Real GDP....................................................................................................5
Personal Consumption Expenditure...........................................................5
Interest rates..............................................................................................6
Net Exports................................................................................................6
Application of theory.....................................................................................6
Fiscal shock................................................................................................9
Expansionary fiscal policy.....................................................................10
Fiscal tightening policy..........................................................................10
Monetary shock........................................................................................11
Quantitative Easing (QE).......................................................................12
Quantitative Tightening (QT).................................................................13
Discussion...................................................................................................13
Conclusion...................................................................................................15
Appendices.................................................................................................15
Bibliography................................................................................................18
Written by s4302666
, Introduction
This report examines the UK’s economic performance as a G20 nation by
analysing its macroeconomic trends, key economic indicators, and policy
responses. It evaluates the UK’s macroeconomic performance through Real
GDP (Y), Personal Final Consumption (C), Gross Fixed Capital Formation (I),
Government Final Expenditure (G), Net Exports (NX), and the policy interest
rate (i), using data from 2013-2023. This report also conducts theoretical
analysis on how economic equilibrium is achieved and how fiscal and
monetary stimulus impact the IS-LM model, leading to a new equilibrium. Key
statistics will be used to assess whether the UK’s actual economic
performance aligns with theoretical expectations, while advising on which
economic policy should be used by both the government and central bank to
ensure economic growth and stability.
Economic overview of the UK Economy
The United Kingdom (UK) has the 6th largest developed economy in the G20,
with a projected GDP increase from £2.53 trillion in 2023 to £2.55 trillion in
2024 (ONS, 2024). The International Monetary Fund (IMF) forecasts further
GDP growth of 1.6% in 2025.
The newly elected Labour government prioritizes low unemployment and
increasing final expenditure to create jobs. As of September 2024, the
workforce reached 36.8 million, a 1.0% increase from the previous year,
adding 364,000 jobs. This growth is supported by government incentives,
including a £192 billion investment in the NHS, a 4% increase from 2023,
aimed at boosting employment (Issa, 2024).
However, the UK faces challenges like rising NHS waiting lists and increasing
inflation driven by energy import dependence. Despite Bank of England
Governor Andrew Bailey downplaying inflation, the BoE has lowered its 2025
growth outlook, leading to reduced consumer and investor confidence
(Daniel, 2025).
Foreign Direct Investment (FDI) is declining, with net earnings falling from
£81.9 billion in 2022 to £43.1 billion in 2023, a 47.37% drop (ONS, 2025).
This decline is likely due to rising corporate taxes and operational costs.
Given these trends, the UK's status as an economic superpower compared to
G20 nations like the USA and Japan is under scrutiny. The following analysis
will delve deeper into macroeconomic indicators and the fiscal and monetary
policies aimed at stabilizing the economy.
Written by s4302666
United Kingdom (UK)
Due on the 31st of March
Written by s4302666
, Table to content
Introduction...................................................................................................3
Economic overview of the UK Economy.....................................................3
Literature Review..........................................................................................4
Gross Fixed Capital Formation...................................................................4
Government Final Consumption Expenditure............................................4
Real GDP....................................................................................................5
Personal Consumption Expenditure...........................................................5
Interest rates..............................................................................................6
Net Exports................................................................................................6
Application of theory.....................................................................................6
Fiscal shock................................................................................................9
Expansionary fiscal policy.....................................................................10
Fiscal tightening policy..........................................................................10
Monetary shock........................................................................................11
Quantitative Easing (QE).......................................................................12
Quantitative Tightening (QT).................................................................13
Discussion...................................................................................................13
Conclusion...................................................................................................15
Appendices.................................................................................................15
Bibliography................................................................................................18
Written by s4302666
, Introduction
This report examines the UK’s economic performance as a G20 nation by
analysing its macroeconomic trends, key economic indicators, and policy
responses. It evaluates the UK’s macroeconomic performance through Real
GDP (Y), Personal Final Consumption (C), Gross Fixed Capital Formation (I),
Government Final Expenditure (G), Net Exports (NX), and the policy interest
rate (i), using data from 2013-2023. This report also conducts theoretical
analysis on how economic equilibrium is achieved and how fiscal and
monetary stimulus impact the IS-LM model, leading to a new equilibrium. Key
statistics will be used to assess whether the UK’s actual economic
performance aligns with theoretical expectations, while advising on which
economic policy should be used by both the government and central bank to
ensure economic growth and stability.
Economic overview of the UK Economy
The United Kingdom (UK) has the 6th largest developed economy in the G20,
with a projected GDP increase from £2.53 trillion in 2023 to £2.55 trillion in
2024 (ONS, 2024). The International Monetary Fund (IMF) forecasts further
GDP growth of 1.6% in 2025.
The newly elected Labour government prioritizes low unemployment and
increasing final expenditure to create jobs. As of September 2024, the
workforce reached 36.8 million, a 1.0% increase from the previous year,
adding 364,000 jobs. This growth is supported by government incentives,
including a £192 billion investment in the NHS, a 4% increase from 2023,
aimed at boosting employment (Issa, 2024).
However, the UK faces challenges like rising NHS waiting lists and increasing
inflation driven by energy import dependence. Despite Bank of England
Governor Andrew Bailey downplaying inflation, the BoE has lowered its 2025
growth outlook, leading to reduced consumer and investor confidence
(Daniel, 2025).
Foreign Direct Investment (FDI) is declining, with net earnings falling from
£81.9 billion in 2022 to £43.1 billion in 2023, a 47.37% drop (ONS, 2025).
This decline is likely due to rising corporate taxes and operational costs.
Given these trends, the UK's status as an economic superpower compared to
G20 nations like the USA and Japan is under scrutiny. The following analysis
will delve deeper into macroeconomic indicators and the fiscal and monetary
policies aimed at stabilizing the economy.
Written by s4302666
