Documente Academic
Documente Profesional
Documente Cultură
uk
Curriculum Topics
• The business cycle
• Boom
• Recession
• Recovery
Introduction profits made. Banks therefore try to maximise their profits in the
interests of their shareholders.
Building societies are an integral part of UK financial services,
offering mortgages and savings as their main products. The name Building societies operate in a very different way from banks.
‘building society’ stems back to the late 1700s when the first Since building societies do not have shareholders, they can focus
society was formed. Small groups of people pooled their savings instead on providing more benefits for their members. These might
to buy land and build houses. Today building societies are the be in the form of cheaper mortgages or better rates of interest on
greatest direct competitors to banks for personal customers. savings. They also focus on providing high levels of personalised
The Building Societies Association (BSA) is the trade association customer service. This can give them a competitive advantage,
that represents all of the UK’s 52 building societies. attracting customers to use their services instead of banks.
Direct competitor: Organisations Mutual organisation: Organisations Stock exchange: Marketplace in which Business cycle: Fluctuations in demand
GLOSSARY
producing similar products that appeal owned by their members and with no stocks or shares are bought and sold. for goods and services creating a
to the same group of consumers. shareholders - traditionally established sequence within the economy from
Trade association: Independent body by groups of people to provide a range boom, to recession, to recovery, to
made up of members from an industry of services that serve the interests of another boom.
that represents that industry as a whole. their members.
EDITION
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When GDP increases over time, this represents greater economic increase their investment during a boom phase and many new
activity and is defined as economic growth. During periods of businesses start up. However, during this time there may be an
growth, consumers spend more and businesses produce and sell increase in inflation as prices rise in response to greater demand
more goods and services. This raises the total level of economic and increased costs.
output. A period of relatively rapid economic growth is known as a
boom. Eventually the growth of economic activity reaches a peak
after which the economy begins to slow down, as businesses 6 Unemployment rate % RHS 12
decide they do not need to take on any more employees or that 10
4 8
investment opportunities are less attractive. The boom is then 6
2 4
followed by a downturn, and eventually a recession. This is a fall in
2
the level of economic activity over time (although not every 0 0
economic cycle involves a reduction in activity – sometimes there -2
GDP growth %
-2 -4
Qtr on Qtr LHS
is only a reduction in the rate of growth). The economy -6
-4 GDP and Unemployment -8
experiences negative economic growth as GDP begins to fall.
-10
When a recession reaches the bottom (or trough), businesses are -6 -12
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likely to lay off employees and produce fewer goods and services.
Some companies may go out of business. However, once
recovery starts, businesses invest more and consumers increase For building societies, a boom is an important period. As wages
spending. This helps GDP to rise. increase, many customers wish to save more. This results in
building societies being able to lend more to their members. People
Economic
have more confidence and are willing to borrow to buy property.
Activity The Business Cycle
Boom In boom years, house prices can increase so rapidly that some
potential homebuyers find houses become unaffordable. Building
Recession Recovery
societies understand that getting onto the housing ladder in this
period is difficult and therefore societies aim to offer more services
for first-time buyers. For example, they can offer new ways in
Trough Time
which customers can buy their own homes, such as the provision
of shared-ownership schemes. This sort of service has been
The activities of business organisations both drive and reflect the developed through work with government and local authorities.
business cycle. As an economy goes through its various stages, This means people need a smaller deposit and have a smaller
business organisations have to manage their activities within each mortgage at the outset of the purchase.
phase. Since building societies do not have to make profits for
shareholders, they can respond to the business cycle in ways that
provide the best possible outcomes for their members, whatever
the circumstances.
Boom
During a boom, there are high levels of economic growth. A boom
has a number of characteristics. Employment levels are high and
wages may rise as businesses try to attract employees. Consumer
confidence is strong and consumers have a positive outlook on
the state of the economy. This then causes an increase in demand
as people spend more on goods and services. Businesses tend to
GLOSSARY
Economic growth: The value of goods Inflation: A rise in the general level of
and services produced by an economy prices of goods and services over a
increases over a period of time. period of time.
EDITION
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House prices source: Nationwide Building Society as this does not benefit either the member or the society. Instead
they provide help. For example, members are asked to contact
During a downturn consumers may not have as much money to their societies if they think that they might not be able to pay their
save. Building societies use savings to fund mortgage lending to mortgage. A survey conducted for the BSA showed that 97%
other customers. Therefore, as saving falls, building societies have of people who went into arrears were able to retain their own
less money to lend and the mortgage market shrinks. During the homes.
GLOSSARY
Negative growth: A contraction in a Interest rates: The rate charged by a Balance sheets: Financial documents Arrears: Debts that are overdue.
country's economy, evidenced by a bank or other financial organisation for that show what a business owns
decrease in its gross domestic product borrowing money. (assets) and what it owes (liabilities) at a
during any quarter of a given year. particular moment in time.
EDITION
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Although the level of mortgage arrears in the UK has been rising in the
recent recession, the level of arrears as a proportion of total lending by
building societies is low compared to the market as a whole.
2.5%
2.0%
1.5%
1.0%
0.5%
The Times Newspaper Limited and ©MBA Publishing Ltd 2010. Whilst every effort has been made to ensure accuracy of information, neither the publisher nor the client can be held responsible for errors of omission or commission.
Source: The Financial Services Authority
borrow for other major purchases. All must still exercise care when
Recovery considering the affordability of the mortgage products they offer.
EDITION
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