Recent global financial crisis of 2007-09 has hit UK market drastically. Overall productivity or output level declined in both service sectors as well as manufacturing sector. Prices of goods & products and services were shooting up and it was resulting to low income spending in the market (Hodson, & Mabbett, 2009).. Therefore, production level was very down as an impact of this crisis.
Impact on Inflation
Inflation has reached to its highest level of 5.2% in 2009 that was higher than the target rate of 2% set by Bank of England. Price of consumer durable goods, food, etc went up. Housing market, real estate sector, employment all were majorly hit by the financial crisis. These sever results led to increase in consumer price index level (ONS, 2015).
Impact on Interest Rates
Financial crisis has resulted to increase in the prices, low money supply in the market, decreasing consumer spending and shut down of businesses (Hossain et al, 2009). In order to control such situation, bank of England had to lower down its interest rates that reached to historical level of 0.5%. Lowering down of interest rate was aimed to increase financing, borrowing from the market, support business, control inflation, provide backup to employment and control increasing prices.
Eventually, UK economy has recovered its setback from the major hit of financial crisis in 2007-09. Taking strong measures of financial controls, Bank of England and government have made significant efforts to control financial position. Low interest rates have opened the way for international market players to establish their manufacturing unit or support existing units by receiving loans at lower rates. Increasing investments in technology in manufacturing or services sectors have significantly supported to increase output level to 2.8% today. Only concern for the government is to increase income source as deficit has been higher over the past five years as a result of financial crisis.