Low Inflation in the UK

Since the Bank of England was given independence in 1997 UK inflation has been close to the government’s target of 2% +/-1. This is a remarkable improvement for the UK economy. Previously the UK economy suffered from consistently high inflation. Eg in 1979 inflation reached 25%. In 1992 inflation reached 11%. Reasons for low inflation are a matter of debate. The chancellor Gordon Brown likes to take credit for giving the Bank of England independence in 1992. However although this partly explains low inflation, it is only a small % of the reason.

Reasons for Low Inflation in the UK

1. Economic growth has been more stable and predictable. The MPC have avoided a boom and Bust economic cycle. At the first sign of inflationary pressures increasing they have increased interest rates to reduce inflation before it occurs (policy is known as preemptive monetary policy.) This has avoided a repeat of the late 80s inflationary boom.

2. Inflation expectations are lower. Partly as a result of the MPC’s greater credibility. People expect inflation to be low, therefore wage demands have been correspondingly lower. This has made it easier to keep inflation low.

3. The process of globalisation has helped to reduce costs and increase competitiveness in global markets. The UK has benefited from falling prices of manufactured goods that have been made in countries like China and Korea.

4. Improvements in technology. The internet and micro chip computers have helped to increase efficiency and lower costs.

5. Increase in the labour supply. Increased immigration has created a new supply of cheap labour which has helped keep wage pressures low.

6. Appreciation of £. This has helped reduce inflation, because imports are cheaper and quantity of exports lower

However inflation may increase in the future. The Governor of the Bank of England recently said there is no reason why the past period of stability and low real interest rates will continue. Several reasons may cause inflation to rise in the future including:

Why Inflation May Rise

1. Economic growth in China and India is causing high demand for commodities and therefore prices are rising. This will feed through into cost push inflation.

2. The UK has a large current account deficit. To reduce this deficit it will be necessary to have a devaluation in the value of £, at some point.

3. The supply of labour is unlikely to increase by too much in the future. Therefore wage inflation may become a problem as the labour market nears full employment.

4. UK House prices continue to rise. This creates additional consumer wealth and therefore increases consumer spending.

The effect of this is that in the future interest rates may have to rise in order to keep inflation low. This will have the effect of keeping mortgage payments high.

Population Migrations: A Boon or a Bane

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There has always been a continuous trend of people migrating from rural dwellings to urban areas in search of an earning more money, a better education or maybe due to environmental degradation in rural areas. Even, political conflicts, wars, and income disparities among and within regions may also be a motivating factor which results in migration whether international or national. Whatever may be the reason, migration is a very common phenomenon nowadays in most of the cities.

Recent studies reveal that the urban population is increasing day by day. Roughly over 125 million people live outside their countries of origin and reside in developing countries. This data includes the 12 million refugees of 1997, permanent migrants and so called environmental migrants and undocumented migrants. As far as the studies in 2005 reveal, out of total population, about 73% in Europe, 74% in Latin America and Carribean, 75% in Australia and New Zealand comprises of urban population. In Africa and Asia population movements still conform to the old patterns . It is also analysed and found that by the turn of the century 261 cities in developing countries will have a population of over one million. There are about 14 so called mega-cities with 10 million people which are expected to double by 2015. The problem in China is even more grave. It is expected that the urban population will increase from 35%to 45% by 2010.

However, migration leads to urbanization which usually accompanies social and economic developments. In some developing countries like Africa the growth reflects rural crisis than urban based development. But conversely, migration to cities may affect the host place, place of origin and the population as a whole. No doubt people can easily find ample avenues of employment in cities, which have lots of industrial set-ups in contrast to the only avenue—agriculture in villages. But as the inflow of workers increased these avenues become scarce as it happened in Vietnam where waves of workers arrive from countryside and start ending up jobless. In trying to meet their needs they start to live in cramped apartments with lack of water supply and health services and engage themselves in low-wage jobs. Many a time, the host societies, countries or governments does not have proper laws or plannings to provide better standards of living to these peoples. As the cities become over populated, the living places become congested. Thus they start living in squatter settlements and slums. People start encroaching public properties. For example, millions of people cling to hills of Rio De Janeiro and even the tombs of Cairo are used as homes by these people. Thus very often the tombs which are occupied by the migrant population are referred as ‘city of dead’.

The lives of the people in the slums become increasingly pathetic day by day. These areas lack proper drainage and garbage disposal system that other way affects the environment and the health of the people. These places even lack proper health care facilities. Thus they lead a very unhygienic life.

Reversibly migration leads to crisis in manpower in the villages, which are the primary producers of raw materials. This affects the economy and the social life of the people. But sometimes international migration proves to be a good source of foreign exchange as the remittances from migrants are a significant source of foreign income. In some countries educated employees migrating to the developed places contributes to the economy of the place of origin. Their income used for consumer goods, building homes, education and health in general contributes to the standard of living to the remittance- dependent families. Moreover young educated migrants from developing countries fill the gaps in work forces of industrialized countries. In many countries the infrastructure built for industries are maintained by the migrant population. Thus migration has both merits and demerits that affect the host and migrant population together.

But is the city life able to give a real better living to all the migrants? The question is hard to answer in a one go. In trying to adapt to the conditions of the city environment the people engage in mean jobs which are sometimes unsocial and even fall victims of abuses. Recent studies in China reveals that now more population faces abuses, lack of health services, old age support and are also denied employment. As a consequence the criminal activities rose to 30% in Beijing, 70% in Sanghai and 80% in Gungdong.

Even though urbanization which is an outcome of migration indirectly, accompanies social and economic development but the rapid inflow of people to the cities today is straining the local and national governments. Most of the host governments facing problems as they does not have any strategic planning to provide the most basic needs like water, electricity and health service to this rapidly growing population. Many countries do not have any proper planning regarding the migrant population. Policy makers look these things as a negative force that creates necessities to be fulfilled and problems to be solved.

Thus in trying to adjust with the city life, the life of this people degrades and they end up in a pathetic living condition, which affects the humanity as a whole. Their dream for a better life shatters and life becomes more mechanical as necessities make people pay least attention to the basic human values. The environment degrade, health of the people deteriorates and indirectly affects the socio-economic state of the people. Though the problem of migration has not attained an epidemic state till now, if initiatives are not taken to check urban-rural migration, it would surely turn up to be a severe problem in the near future. outdoors