As an example of monetary policy, interest rates have recently been cut to 1.5%, the lowest level for 314 years. In theory that should encourage people to borrow and increase domestic demand.
Here is a diagram illustrating the effect of interest rate cut on the inflation rate ( which also fell to 1.1% in December):
Some economists even argue that interest rate paid on our savings could go negative.
As for fiscal policy, there has been a VAT cut recently from 17.5% to 15%. The main aim was to encourage people spending, but this cut hasn't had much effect yet as it says here
As for supply-side policies, encouraging migration may be useful in order to fight recession:
Migrant workers are essential in delivering the key construction projects that will help to boost local economies.'
Some actions are to be done to persuade consumers to keep spending and borrowing and businesses to keep investing.
For example, setting affordable borrowing schemes or set up a scheme for businesses that minimises losses like Chapter 11 in the USA.
' companies that fail because of debt issues can survive in a downsized and restructured form are given the time to generate a compelling proposal that seeks to maximise the payments to creditors, and to save at least some of the business '
What is also going to be done by UK government:
- Planned increases in child benefit will be brought forward and child tax credits will be increased.
- Pensioners will get a £60 one-off Christmas bonus payment.
- increase road tax for millions of cars already on the roads.
