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Table of Contents
1. Introduction ________________________________________________________ 5 2. Factors Determining Monetary and Fiscal Policy ___________________________6

3. Impact of monetary and fiscal policy measures on Different variables in the economy _______________________________________8
3.1 Economic Growth ___________________________________________________ 8 3.2 Unemployment ______________________________________________________ 8 3.3 Gross Domestic Product _______________________________________________ 9

3.4 Balance of Payments_________________________________________________ 10 3.5 UK Trade & Business Investment_______________________________________ 10 3.6 Consumer confidence________________________________________________ 12 3.7 Effective exchange rate_______________________________________________ 12
3.8 Lending to UK businesses _____________________________________________13

4. Suggest to Monetary Policy Committee regarding Interest Rate _______________14 5. Impact of Governments Fiscal and Monetary Policy on Mortgage______________16 6. Conclusion __________________________________________________________ 18 7. References __________________________________________________________19

EXECUTIVE SUMMARY

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The UK economy continues to recover from the effects of the financial crisis. But that adjustment process has been slow and painful. It is important to learn from the events of the past three years. Several articles in this Bulletin pick up that challenge, exploring: the impact on the price of new household borrowing; the collapse in world trade; the deterioration in businesses output expectations; and the sharp falls in house prices. One of the defining features of the financial crisis has been the scale and intensity of the challenges faced by the banking sector. In the United Kingdom, Bank Rate was reduced sharply, but the fall in interest rates charged on new lending to households was significantly smaller and indeed some interest rates rise. The article in this edition explores the factors behind the rise in the price of new household borrowing relative to Bank Rate. Higher spreads on long-term wholesale funding costs faced by lenders have been a key contributor, in part as market participants revised up their perceptions of the riskiness of lending to banks. But other factors also appear to have played a role, reflected in a pickup in the residual component of the decomposition. The larger residual needs to be interpreted with caution but, among other things, it is consistent with lenders increasing mark-ups over marginal costs for new lending, which may reflect a need to build higher capital levels within the banking sector In October of 1997, a Memorandum of Understanding was drafted specifically to outline the responsibilities and relationships between the Bank of England, Her Majestys Treasury, and the Financial Services Authority (FSA). An agreement in this document created a standing committee that works to ensure the three organizations work together to manage the economy and financial system. This Memorandum, which was updated in 2006, confirmed that the Bank of England would continue to be responsible for the financial system as a whole, while the Financial Services Authority would supervise individual banks and other financial institutions. This year's conference brought together six research papers that explore issues related to fiscal and monetary policy and their interaction. The papers ranged from a theoretical analysis of the design of fiscal policy in a monetary union to the use of long-term bond rates to estimate monetary policy reaction functions. Several of the papers examine the role of fiscal policy in macroeconomic stabilization, an area of renewed interest in both research and policy circles. Over the past few decades, many economists had come to the conclusion that activist fiscal policy, outside of so-called "automatic stabilizers," such as unemployment insurance, was in general poorly suited as a tool for macroeconomic stabilization. According to this view, fiscal policy should instead

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primarily focus on longer-run issues, including the provision of public goods, correction of market failures, and the achievement of equity and efficiency goals. Recent developments, including the active use of countercyclical fiscal policy in uk. And the formation of a monetary union in Europe, have provided and movement for a wide range of research on fiscal policy and its interaction with monetary policy.

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INTRODUCTION
The present monograph seeks to provide the overview of modern monetary theory. Over the past decade, monetary economics has been among the fruitful research areas within macroeconomics. The effort of any macroeconomics researchers to understand the relationship between monetary policy, inflation and the business cycle that led to the development of a framework. The following topics offer an introduction to that basic framework and a discussion of its policies implications.

2. FACTORS DETERMINING MONETARY AND FISCAL POLICY IN THE UK

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Monetary policy is the management of national money supply to achieve economic goals by the Council of exchange. Monetary policy objectives may include the control of inflation, exchange controls, or even simply economic stability. Monetary policy is in contrast to fiscal policy, which aims to achieve economic goals through taxation and public spending. The monetary and fiscal policies have an impact on the total economy. Such as macroeconomic policy, and guide and control the behaviour of the economy. The following factor is to consider in formulating and implementing monetary policy. 1. Inflationary state of the economy: Monetary inflation can be considered as printing money by the federal government. In the old days, the government is physically prepared more money and put it into distribution. In a global economy today, however, with various types of scholarships, money market accounts, offshore banks and holding companies available, the amount of money in circulation can increase by more complexes. When money comes into circulation at a rate that exceeds the available supply of goods, inflation is under way. There is usually a correlation between the quantity of products available and the amount of money in circulation. If the goods become more available, more money should be put into circulation or prices will actually. If the economy suffers from higher inflation and increase the money supply through monetary policy may be ineffective. So, in making financial and monetary policy, this factor must be considered. 2. Govt.'s estimated GDP target: GDP is gross domestic product. This is a method of measuring the size of a country's economy. We know the total market value of all goods and services produced within a country during a given period. UK Govt. to implement the policy of estimated GDP. So this should be taken into account in monetary policy and fiscal policy.

3. Economic condition of a country:

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The state of the financial situation of a country in a given period can be determined through the use of statistics associated with the unemployment rate, data exchange, and GDP data, including indicators. When the economy is in recession, monetary policy may be ineffective in increasing revenues and costs. In this case, fiscal policy can effectively stimulate demand. 4. Present interest rate in the market: In making the policies another important factor is the present interest rate. The current interest rate determines whether expansionary monetary and fiscal policy should be introduced. The success of the monetary policy is depends on this factor. 5. Government revenue target: Every year the government makes specific revenue goals. The budget government indicates it. Thus, the fiscal policy should be considered. Suppose that the restrictive fiscal policy is reduced. If this happens, the policy conflict with the aim of achieving the revenue target. 6. Government policy towards Export and Import: Sometimes, government wants to make some barrier against the importation or exportation, in order to make fiscal policy and monetary policy, which should be considered. Reduction of export or import duties, establishing the entire industry can have an impact on government policy. 7. Government privatization policy: If the government want to privatize and encourage the private sector to develop, Govt. takes the privatization policy. In this case, Govt. provide facilities to the private sector through lower taxes and lower interest rates through monetary and financial policy and vice versa. So a govt. view on privatization is another important factor. 8. Foreign currency reserve: Every year Govt. especially the central bank has a specific overseas currency reserve goal. To increase reserves, favourable monetary policy should be introduced. Thus, it is also important factor into consideration. 9. Political stability:

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The political situation of a country is an important factor to make these policies. If there are stable political situation, any policy can be easily implemented. 3. IMPACT OF THE MONETARY AND FISCAL POLICY MEASURES ON DIFFERENT VARIABLES IN THE ECONOMY 3.1 ECONOMIC GROWTH The objectives of fiscal and monetary policy are parallel. Both are used for maintaining low inflation (inflation target of 2%), Keep a positive economic growth (short-term trend rate of 2.5% throughout) and goal for full employment The main objective of fiscal and monetary policy is to reduce the cyclicality of the economy. Often, it is inflation targeting, which is more constrained by monetary policy. Fiscal policy is to change public spending and taxation. This is a change in the budget of the government's position. For example, an expansionary fiscal policy involves tax cuts, government spending and a higher budget deficit higher. Monetary policy is to influence supply and demand for money, mainly through the use of interest rates. It may also be heterodox policies such as open market operations, and quantitative easing. 3.2 UNEMPLOYMENT The growing importance of monetary policy and reducing the role of fiscal policy in economic spending stabilization or raising may taxes, reflect while both political and economic realities. Fight to fight against inflation requires the government to take unpopular measures such as reducing traditional fiscal policy solutions against unemployment tend to be more popular because they require higher spending or cut taxes. Political realities, in short, may favour a greater role of monetary policy in times of inflation

3.3 GROSS DOMESTIC PRODUCT

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An increasing share of domestic production is exported to Great Britain abroad as the country becomes increasingly integrated global economy. Export earnings are injected into the flow of DA circular. If British companies can succeed in selling more goods and services abroad, increased exports and increase national income must have a positive multiplier effect on domestic production of income and employment.

Fig shows on GDB Growth in uk for last 3 years

3.4 BALANCE OF PAYMENTS

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Balance of payments (BOP) records all financial contracts that many are made between clients, businesses and government of the United Kingdom with people from around the world. BOP numbers tell us how much is spent by consumers and businesses in the UK for imported goods and services, and how successful companies in the United Kingdom exported to other countries and markets. This is an important measure of the relative performance of the United Kingdom in the world economy. At we focus only on part of the balance of payments. This section is known as current account. 3.5 UK TRADE AND BUSINESS INVESTMENT The British economy is the largest national economy in sixth place in the world, as measured by nominal GDP and purchasing power parity (PPP) and the third largest in Europe, as measured by nominal GDP and the second largest as measured by PPP (after Germany). United Kingdom, GDP per capital is the highest 20 in the world in nominal terms and more than 17 measured by the PPP . The UK economy is composed of (in descending order of size) economies of England , the Scotland , Wales and Northern Ireland . The United Kingdom is a member of the Commonwealth of Nations , the European Union , the G7 , the G8 , the G20 , the International Monetary Fund , the Organization for

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Economic Cooperation and Development , the World Bank , the Organization World Trade and the Brazil-US. In the 18th century, the United Kingdom was the first country to industrialize , and for much of the 19th century had a dominant role in the global economy. However, in the 19th century, the second industrial revolution in the United States and the German Empire has presented a growing challenge for the role of Britain as a leader in the global economy. Despite the victory, the costs of the fight against two World War I and World War II further weakened the relative position of the economy of the United Kingdom, and in 1945 Britain was overtaken by the United States as the main actor in the global economy However, Great Britain retains an important role in the global economy.

Export sales are particularly important for manufacturing, where exports are a high percentage of total production. Thousands of jobs depend directly on the performance of the export sector, and even more are affected in the areas of supply.

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3.6 CONSUMER CONFIDENCE The consumer confidence surveys are expected to provide useful information "before" warning of possible turning points in the cycle. Thus, for example, a sharp decline in consumer optimism may announce a cut in spending that could lead to slower GDP growth and a weakening of inflationary pressures.

3.7 EFFECTIVE EXCHANGE RATE The sterling effective exchange rate depreciated significantly since the beginning of the financial market crisis in August 2007. Movements in sterling in the UK affect monetary policy through its potential impact on the outlook for inflation in the CPI, which is important to examine the reasons for this change in the exchange rate. Sterling potential movements reflect a wide range of factors, the UK and abroad, both in the real economy and financial markets. Evidence suggests depreciation of the pound, which reflects a combination of perceived changes in conjunction with the term prospects of the United Kingdom, the degree of perceived risk of assets in the United Kingdom and the apparent need to rebalance the economy the United Kingdom, whose effects could be amplified by factors of financial markets. But there is considerable uncertainty about the precise role of each factor. The relative success of failure of export industries is significant for certain regions of the United Kingdom. When sales plunge in exports (for example, following a global recession or the impact of the strong exchange rate), production, employment and quality of life under threat, and threaten to expand the existing north-south divide.

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3.8 LENDING TO UK BUSINESS England's statistics from the Bank's outstanding loans to businesses in the UK fell 1.1% in January over a period of three months and 3.8% on a month-base 12. Companies collectively paid 1.2 billion more than they borrowed during the month. According to the British Bankers' Association, the figures reflect the fact that UK companies, such as families, focus on debt repayment rather than ask for more. The united kingdom coalition government and the largest lenders in the country has declared a truce in February, according to which banks have promised to pay more and pay less and government officials are committed to making the UK more welcoming to institutions Financial. Under the agreement, called the Merlin Project, Barclays PLC (BARC.LN), HSBC Holdings PLC (HSBC.LN), Royal Bank of Scotland Group PLC (RBS.LN) and Lloyds Banking Group PLC (LLOY. LN) agreed to GBP190 billion in loans to businesses this year, an increase of 6% over the previous year. Data from the Bank of England showed that the rate of decline in lending activity is slowing. The decrease of 3.8% represents an improvement compared with year-on-5-year slump% in the last quarter of 2010 and a contraction of 5.7% in the third quarter.

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4. SUGGEST TO MONETARY POLICY COMMITEE REGARDING INTEREST RATE Before each meeting of the Monetary Policy Committee, an avalanche of economic data is placed before the members of the Commission set the rate of CPM. Most data is treated as information you may have been familiar with the AS economy during their course and A2. Economic data come every month by the MPC are: Bank lending and consumer credit figures It includes levels of mortgage equity withdrawal and housing market and also the lending of credit card per month. International economic including macroeconomic developments in the twelve member countries of the largest euro zone economy and the world, the United States. Equity markets (share prices) and house prices Both are considered important in determining household wealth, which then feeds through loans and consumer spending. The state of the housing market in the United Kingdom has had an influence on interest rate decisions over the last 2-3 years, although we must remember that the monetary policy committee has not Official target for the annual rate of housing price inflation. Consumer confidence and business confidence indicators Confidence surveys are expected to provide useful information "before" Warning possible turning points in the cycle. Thus, for example, a sharp decline in consumer optimism may announce a cut in spending that could lead to slower GDP growth and a weakening of inflationary pressures. The growth of wages, average earnings and unit labour costs Labour market - these are considered important indicators of demand pull and cost push inflationary pressure. The Monetary Policy Committee may fear that annual inflation rose above the salary threshold of 5%, as it could possibly affect an increase in consumer prices.

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Unemployment figures And survey data on the scale of the shortage of skilled labour - are also indicators of the labour market as mentioned in the last point. Trends in global foreign exchange markets For example, changes in the value of the pound against the euro or U.S. dollars. A weaker exchange rate can be considered a threat to inflation because it raises the prices of imported goods and services. Potential clues such as the Purchasing Managers' Index and quarterly surveys of business confidence, including data from the Confederation of British Industry and British Chambers of Commerce GDP growth and spare capacity The rate of growth of domestic real and estimated the sizes of the output gap are essential for the discussions within the MPC on setting the appropriate level of interest rates. Its main task is to set monetary policy so that demand will grow roughly in line with the increase of the productive potential of the country.

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5. IMPACT OF GOVERNMENTS FISCAL AND MONETARY POLICY ON LEISURE SECTOR The British economy has been particularly resistant to shocks that have affected other countries in recent years. Has been formed largely by the effects of the attacks of September 11, 2001, the United States, South Asian crisis caused by SARS in recent months and seems capable of withstanding the July 7 and 21 terrorist attacks on the mainland UK. The impact on service sector i. ii. iii. iv. The services sector, which produced rapid growth in recent years, is slowing down UK overall economic growth will be achieved following Unless other sectors of the economy could "take over" This means that manufacturing and construction, for example, increase to compensate for the lack of growth in the services sector Lower Economic growth
i.

Slower growth means less demand for goods and services This translates into fewer jobs and rising unemployment The fear of losing their jobs may lead to lower demand, even if people are afraid of what the future holds There could be a spiral of falling demand and rising unemployment

ii. iii. iv.

The UK service sector is slowing i. ii. iii. Chartered Institute of Purchasing and Supply (CIPS) activity index measures the amount of business going on in the service sector Despite the slowdown, however, the index shows that the sector grew for the 29th consecutive month Transport, communications, hotels and restaurants are among the strongest segments of the industry, financial services were the lowest

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Further evidences for slowing down i. ii. iii. iv. v. vi. DIY and home improvement giant B & Q cut 400 jobs and regional governments Courts have ruled in stores B & Q But later denied the news Scenario of a slowdown in spending on gardening and DIY "Analysts predict a decline of 1.5% in verdict first decline in five years

Other indications of a decelerating services sector i. ii. iii. iv. v. Party Gaming, a company pairs online, warns of loss of future growth Caused a 30% drop in the price of its shares Higher turnover of players Reduce the amount of money they spend Average expenses were down by 7%

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6. CONCLUSION The global economy is a complex beast, with the sectors able to progress at different rates over time, with little impact on the economy in general. The data indicate that activity in the secondary sector, particularly construction and manufacturing is strong enough to keep the economy growing global UK. But perhaps for some, in parts of the leisure industry, the party may be more. The Competition is fierce in the retail sector has led to pressure on street traders many. It reduces the success of the street traders. The demand for entertainment services, inside and outside the home continues to be little affected - those who work to see this type of recreation, spending needed to maintain a healthy balance between work lives. But the economics of leisure that are linked to a dynamic real estate market before, such as DIY and gardening, are evident signs of slowing, with some retail chains to make staff reductions. However, the health expenditures and beauty is fleeting, because it should be considered as the non discretionary.

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7. References:
Arestis, P. The New Consensus in Macroeconomics: A Critical Appraisal. In G. Fontanaand M. Setterfield (eds.), Macroeconomic Theory and Macroeconomic Pedagogy.Palgrave Macmillan, 2009, ch. 5. Fontana, G., and Palacio-Vera, A. Are Long-Run Price Stability and Short-Run Output Stabilization All That Monetary Policy Can Aim For? Metroeconomica, 2007, 58 (2), 269 298. Forges Davanzati, G., and Realfonzo, R. Wages, Labour Productivity and Unemployment in a Model of the Monetary Theory of Production. Economie Appliquee, 2009, 53 (4), 117 138. J.-F. Ponsot and S. Rossi (eds.), Money, Capital Turnover and the Leisure Class: Thorstein Veblens Tips for MTP Models. The Political Economy of Monetary Circuits: Tradition and Change. London: Palgrave Macmillan, 2009, ch. 3. Lunghini, G., and Bianchi, C. The Monetary Circuit and Income Distribution: Bankers as Landlords. In R. Arena and N. Salvadori (eds.), Money, Credit and the Role of the State. Aldershot, UK: Ashgate, 2009, pp. 152174. Rochon, L.-P., and Rossi, S. Central Banking and Post-Keynesian Economics. Review of Political Economy, 2007, 19 (4), 539554. Rossi, S. Money and Inflation. Cheltenham, UK: Edward Elgar, 2009. Walsh, C.E. Teaching Inflation Targeting: An Analysis for Intermediate Macro. Journal of Economic Education, 2002, 33 (4), 333346. Bank of England (2011) monetary policy Source: WWW From http://www.bankofengland.co.uk/monetarypolicy/index.htm#

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