Macro Economic Policy Measures in UK & Sri Lanka

8/7/2019 Macro Economic Policy Measures in UK & Sri Lanka

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Macro Economy

Macro Economy is a member of the Economics family. It is responsible in monitoring the performance,structure, behavior and decision making of an economy. The sibling of Macro Economics is Micro

Economics. Macro economics has many different measures in monitoring above mentioned features of

an economy. For the purpose of this essay, I will be elaborating on the Unemployment & Inflation topics

with relevant to UK and Sri Lankan as policies of Macro Economy.

Unemployment in UK

Unemployment rate of UK stands a 7.9% figure where it was increased by another 0.1% in this

quarter. Number of employed in the period of October- December 2010 has increased by

218,000 while it took a minus figure of 68,000 in the first quarter of 2011.

The general work force of 70.5% has been reduced by 0.1% over the last year. The unemployed

figured a value of 2.49 million in October- December 2010.

According to the minister of employment Chris Grayling- UK, the critical unemployment

situation is now recovering while the number of new job offers has been increasing. The nextchallenge upon governments shoulders is to convince its unemployed force to enjoy the benefit

of these vacancies by providing attractive incentive schemes.

According to the Chief Economic Advisor CIPD, John Philpott, the number of working force is

depreciating, the unemployment rate is increasing and the numbers of people being inactive dueto financial uncertainties are increasing which gave out the sign of job opportunity weakening inyear 2010. As he stated, the dependency ratio has been slightly depreciated where a slight

improvement of job opportunities was visible as it turned in to 2011. It is quite encouraging tosee a turn up in full- time employment but the number of part time employment has been

reduced. Therefore, it is assumed that the pert time employees has been transferred to full timecausing an increase in full time employment rather than an actual improvement in employment.

"A weakening jobs market, muted economic growth, ultra-tight fiscal policy, plus well above

target price inflation and the greater prospect of an interest rate hike sometime later this yearprovide all the ingredients for a perfect storm to hit the UK economy. No wonder Bank of

England Governor Mervyn King struck a sombre note today when downgrading the Banks nearterm forecast for economic growth, while also keeping us guessing on whether the Monetary

Policy Committee will hike interest rates anytime soon. As he faces into this gathering storm, theChancellor must plan next months budget. It will be crucial for the job market that he succeeds

in delivering the planned budget for growth at a time of great austerity. If he finds this animpossible task, he may yet have to reach for a fiscal Plan B."

(http://www.hrmguide.co.uk/jobmarket/unemployment.htm)


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Inflation in UK

UKs inflation rate has been appreciated by 3.7% to 4.0% since December 2010. According to

several government officials, the main courses behind this sudden inflationary situation areincrease in VAT percentages and price increments in crude oil.

Most pressurizing points about the drastic CIP annual inflation are the changes in VAT

percentages and price fluctuations in Fuel and Lubricants, Restaurants & Cafes, Alcoholic

Beverages, Furniture and purchase of vehicles.

The change in CIP inflation made an effect on the Retail Price Index (RPI) inflation by making

an increment of 4.8% in to 5.1 from December 2010 to January 2011.

CIP, the international inflation measure points out that the UK inflation in December 2010 was

high above the conditional figure of the whole of European Union. UK rates a 3.7% while theEU rated a 2.6%.

Fig.1 : Annual Inflation Rate

(http://www.statistics.gov.uk/cci/nugget.asp?id=19)


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Unemployment in Sri Lanka

Unemployment has been a critical issue in Sri Lanka since its history because it made a remarkable

percentage of 24% in 1973. In present times, Sri Lanka is experiencing an unemployment rate of 5.90%

which is a drastic change when compared with 1973.

Unemployment has mainly driven over the younger generation of Sri Lanka and mainly, the

unemployment rate increased as the level of education rose. It is acceptable the fact that Sri Lanka was

experiencing a 24% of unemployment in 1973 due to the lack of resources, job availabilities and poor

literacy maintained. But in the present scenario, Sri Lanka is a leading developing country with higher

education levels and even the women has started working and earning by changing the traditional Sri

Lankan mind set of Women should not work, instead, stay home look for the children.

A researcher Rama (1999) has found out that there are three main reasons behind the booming

unemployment in Sri Lanka. Firstly the age, as it is noticeable, the unemployment among the youth is

high and it declines as the age gap increase. Secondly the education, studies has discovered that the

unemployment increase with the level of education as the country is facing a scarcity in job issuing to

satisfy all its graduates. Finally it is the family support, as it is noticeable in the present, most of the

school leavers have decided to carry on their higher studies being supported by their parents. Due to

this strategy, the number of eligible work force of the youth is still remaining unemployed adding more

value to the term Unemployment.

Fig 02. Unemployment statistics of Sri Lanka(http://www.indexmundi.com/sri_lanka/unemployment_rate.html)

Year Unemployment rate Rank Percent Change Date of Information

2003 8.00 % 115 2002

2004 8.40 % 116 5.00 % 2003

2005 7.80 % 68 -7.14 % 2004 est.

2006 7.70 % 76 -1.28 % 2005 est.

2007 7.60 % 86 -1.30 % 2006 est.

2008 6.00 % 75 -21.05 % 2007 est.

2009 5.20 % 62 -13.33 % 30 September 2008 est.

2010 5.90 % 54 13.46 % 2009 est.


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Inflation in Sri Lanka

As much as the unemployment, another sensitive issue of Sri Lanka is its Inflation. Sri Lanka is a country

which was affected by war for over three decades causing various imbalances in its economy and great

expenditure on aiding to defeat the war season.

Sri Lanka is now back on its path to stability where the government has deployed its projects on

developing the economy as well as the living standards of people in Sri Lanka. In order to execute these

projects, Sri Lanka had to borrow money from the IMF and developed nations since it had a scarcity of

finance after the war. As a natural impact of borrowings, prices of goods and services in the market

began to make a gradual increment causing for an inflationary situation. Prices were up by several

rupees since the government required more finance in paying back what they have borrowed. But

compared to the inflation rate maintained during war season, Sri Lanka is improving while experiencing

a decrement in inflation while seeing the country is developing.

Compared with previous inflationary situations, Sri Lanka is now enjoying a slope in the CCPI (Colombo

Consumer Price Index) reaching 5.3 in May 2010. This has been recorded as the lowest since the

beginning of 2010. Inflation was recorded to be 6.5 in January, 6.9 in February, 6.3 in March, 5.8 in April

and 5.3 in May 2010. The annual inflation was reported to be 3.6%.

Fig 03. Inflation in Sri Lanka

(http://magerata.wordpress.com/2010/06/02/sri-lankan-inflation-drops-for-the-third-consecutive-

month/)

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Macro Economic Policy Measures in UK & Sri Lanka