Economic

The Welsh Government and the United Kingdom Government’s economic policies seek to maintain a thriving and growing economy. They are able to achieve this in a number of ways:

Fiscal Policy

Fiscal policies relate to Government spending and taxes. Through its fiscal decisions, the Government is able to control the amount of money in the economy. For example, if a Government raises income tax, people will have to pay more tax and therefore have less money to spend.

Monetary policy

Monetary policy involves interest rates. UK monetary policy is decided by the Bank of England and so the bank makes decisions about setting interest rates. It can use interest rates to try to ensure that there is no excess inflation or deflation in the economy. Inflation is sustained price growth across the economy – the Government's current inflation target is 2%. If inflation is high, prices rise rapidly, and wages often do not rise at the same rate, so people's purchasing power is reduced.

Watch the video for further clarification.

BBC Cymru Fyw

Supply-side policies

One of the other ways in which Government can affect the economy in which business operates is by improving the productivity capacity of the economy – i.e., making the economy more productive. It can do this by investing in projects, e.g., building new roads or railways for the benefit of business. It can also seek to improve the quality of the country's workforce through education and training policies.

For example, the Welsh Government is currently promoting Apprenticeships to help businesses develop their workforce:

Welsh Government - Apprenticeships

Economic growth

The United Kingdom Government are focused on growing the economy and adding value to the economy. The value of an economy is defined by Gross Domestic Product (GDP). GDP is the total value of all the goods and services produced within the economy.

On the ONS website, there’s a graph that shows the UK’s GDP since 2007 (Monthly Index, January 2007-January 2023, UK.)

Go on the ONS website to look at the graph under heading number 2, ‘Monthly GDP’.

ONS website

What was the trend before January 2020?

What happened in January 2020?

Exchange rates

Exchange rates are the price of a currency relative to another currency. For example, the exchange rate between £ sterling and the Euro shows how many pounds are needed to buy euros and how many euros are needed to buy pounds. Exchange rates can have a significant impact on companies importing and exporting goods because changes in the exchange rate will affect their price in countries that use different currencies.

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