Steering the economy
A HM Treasury case study

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Page 4: Macroeconomics

Hm Treasury 5 Image 5Macroeconomics is concerned with the economy as a whole – not details of individual industries or products – regarding key issues such as:

  • inflation - percentage increase per annum in the price of goods and services
  • output and growth - measures the total income of the economy in goods and services
  • investment - doing without consumption today in order to generate future returns
  • employment - changes in the labour market.

In the past, Britain suffered from greater variations in output and inflation than many other industrial countries. Low and stable inflation is important for creating the right conditions for business confidence which creates jobs within the economy and promotes investment and trade. Businesses also value transparency which is the key to developing their confidence. Macroeconomic stability is good for individuals as well as business because it increases confidence and prevents boom and bust.

A framework has been introduced to promote economic stability, which ensures that macroeconomic policy responds sensibly to economic shocks.  This includes:

  • a monetary framework to deliver low and stable inflation that allows the Bank of England’s Monetary Policy Committee the independence to set interest rates to deliver the Government’s inflation target
  • a fiscal framework with strict fiscal rules that retains tight control over government finances
  • a public expenditure regime with three-year spending plans to provide greater certainty and encourage longer-term planning.

HM Treasury | Steering the economy