The United Kingdom is a currency union of England, Scotland, Wales & Northern Ireland, with all countries using the Pound (£) as their currency. While the UK monetary union is smaller than that of the Eurozone (analysis on the Eurozone can be found here), each country is still unique in the same way that the European countries are within the Eurozone. We have taken four categories (business cycle, public finance, competitiveness and monetary dispersion) to analyse the UK’s monetary union. This takes in to account all four countries, but further divides England into the 9 regions. The analysis looks at each area from the years 1999-2017. This time frame is used because it allows for comparison to the Eurozone index, which also starts in 1999. A breakdown of what each category is compiled of can be read in the table below:.
Sources: Office for National Statistics (GVA, GVA per capita, Public Debt Interest Payments, Net Fiscal Balance, AWE, Inflation, Real Exchange Rate), HM Revenue and Customs (Trade Balance), UK Finance (Household loans).
Regions: North East, North West, Yorkshire and The Humber, East Midlands, West Midlands, East of England, London, South East, South West; also, Wales, Scotland and Northern Ireland.
Notes: (a) Inflation is the GVA implied deflator. (b) Calculated as the nominal exchange rate between the pound in one region versus the other regions (effectively, 1) x (implied deflator for the region/implied deflator for the UK). The overall index of dispersion suggests that the UK is fairly harmonised. While the overall index of dispersion changes over time, it follows quite a stable pattern: the biggest change can be seen during the crisis years (2007-09) as it would be expected, and the dispersion levels diminish following the crisis and show more uniformity
Harmonisation is further shown when analysing each chapter’s dispersion: (1) Monetary dispersion was quite stable during the pre-crisis years and shows an increase during the crisis years, reaching a peak in 2010. However, there is then a decrease in dispersion following the crisis and a return to the pre-crisis levels during 2014 onwards
(2) When analysing the competitiveness index and (3) business cycle dispersion, dispersion values are higher than those of monetary indicators but the trends are rather similar: stability in the pre-crisis years, and increase in dispersion in the crisis years and a return to pre-crisis levels (if not lower) during 2014 onwards. In any case, these levels of dispersion in the business cycle are not that large, especially when comparing to the Eurozone’s; with a peak dispersion over 120 (in 2000), compared to the UK with a peak dispersion of just under 210 (in 2015).
(4) The remaining category, public finance, shows higher levels of dispersion during the crisis levels, following a sharp increase in dispersion in 2007 that eventually reaches a peak in 2009. But again, as with the other chapters, there is a return to pre-crisis levels following a recovery after 2010 where the dispersion begins to fall.