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ange Rate Index hits its highest point since 1989. This led to a stronger currency & increased purchasing power parity (PPP). This had a direct positive impact on consumption expenditure. Bank of England raised its repo rate by 0.5% to a peak of 7.5%, which led to decrease in money supply in market that negatively affected the consumption expenditure.

In 1999 budget tax was applied on energy consumption. So this led to decrease disposable income for consumers and increased income for government. In April 1999 minimum wage level was introduced in UK that employers will legally pay to employees. Minimum wage increases the standard of living of workers and reduces poverty. But on the other side it excludes low cost competitors from labour markets, hampers firms in reducing wage costs during trade downturns, generates various industrial-economic inefficiencies as well as unemployment, poverty, and price rises, and generally dysfunctions.

Year on year house price growth peaked at 15% in January and February 2000 showing negative signs for future outlook for the sector. Further in March 2000, Oil price had risen to highest level in ten years. Higher inflation overall meant low real consumption. Troubled by rising inflation, Hauliers and farmers staged large scale protests over the prices of fuel. In May 2000, share prices in so-called internet companies started falling, showing signs of dotcom burst. This meant tough times for economy ahead. Inward investment in the UK had hit record levels, with a large proportion made up of take-over deals. This depicted overheated level of economy that was prevalent at that time frame. In December 2000 US GDP growth slowed sharply, following prolonged expansion. This meant the UK economy too was set for a downward phase ahead.

DotCom Burst & Asset Bubble (2001-2006)

In January 2001 the Federal Reserve had cut interest rates twice in one month, by 0.5% each time. This had an impact on marginal propensity to save, since investments were less attractive than before. In the UK, business insolvencies were at a six year high. Pharmaceutical company Glaxo shed 18,000 staff, 7% of its UK workforce. This spawned a series of macroeconomic events, and raised recessionary worries. 9/11 Terrorist attacks in United States. The World Trade Centre in New York was destroyed, jolting the financial markets to a slowdown. In October US attacked Afghanistan. Argentina devalued its currency and defaulted on its debt of $155 billion, the biggest default in history. This event further added fuel to the recessionary worries across global markets. Bank of England had cut interest rates from 4.5% to 4.0% in anticipation to heat up the slowing economy. This had marginal impact in increasing consumption expenditure. In the third quarter of 2001, US GDP shrinks for the first time in eight years, further giving bad signals for UK economy. Enron, the 8th largest company in the United States, collapses leading to concerns about accountancy practices, banking involvement and financial market regulation. Impact of all these events was that the consumption expenditure in UK in 2001 was destined to come down.

In April 2002, UK tax was raised announced to fund NHS. This left households with less disposable income and hence the consumption expenditure was bound to come down. In October 2002, UK housing boom peaked as house price inflation reached 30%, this had a m