During 2011, the recovery of the economy from the recession that began in 2008 was much less rapid than was hoped. Output was relatively flat while inflation accelerated to a rate well above the target rate of 2% per annum. To some extent this can be explained by international factors in that the world economy as a whole failed to recover at the rate that was expected. However, domestic factors also played a role. In particular, the priority of the government was to get the budget deficit under control rather than to stimulate economic growth. The result has been a combination of tight fiscal policy combined with relatively loose monetary policy. The danger of this is that the economy could get stuck in a high unemployment equilibrium from which recovery would be slow at best.
Table 1 presents some basic summary statistics for the UK economy since 2004. It is clear that 2008 was a critical year for the UK economy, as it marked a move into recession following a long period of steady growth. Gross Domestic Product (GDP) fell by 1.1% in 2008 but this was only the start of the much more serious crisis that emerged in 2009 when output fell by over 4%. The reasons for this collapse in output have been well documented elsewhere.
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