Economic History of England - 21st Century

21st Century

Further information: Economy of the United Kingdom

In the Labour Party's second term in office, beginning in 2001, the party increased taxes and borrowing. The government wanted the money to increase spending on public services, notably the National Health Service, which they claimed was suffering from chronic under-funding. The economy shifted from manufacturing, which had been declining since the 1960s and grew on the back of the services and finance sectors. The country was also at war with first Afghanistan, invading in 2001 and then Iraq, in 2003. Spending on both reached several billion pounds a year.

Growth rates were consistently between 1.6% and 3% from 2000 to early 2008. Inflation though relativity steady at around 2%, did rise in the approach to the financial crash. The Bank of England's control of interest rates was a major factor in the stability of the British economy over that period. The pound continued to fluctuate, however, reaching a low against the dollar in 2001 (to a rate of $1.37 per £1), but rising again to a rate of approximately $2 per £1 in 2007. Against the Euro, the pound was steady at a rate of approximately €1.45 per £1. Since then, the effects of the Credit crunch have led to a slowdown of the economy. At the start of November 2008, for example, the pound was worth around €1.26; by the end of the year, it had almost approached parity, dropping at one point below €1.02 and ending the year at €1.04.