Proper fiscal management has undoubtedly helped avert a sharper downturn. The economy is now strong enough to cope with critical macroeconomic problems and its performance is better than its major trading partners and the European Union countries.

Britain's economy was in a distressed condition in the 1970s and 1980s and took 20 years to return to normalcy. Macroeconomic reforms like privatization, deregulation and labor laws initiated by Margaret Thatcher in the 1980s and 1990s have totaly changed Britain's economic landscape. Further to this, Britain's government has handed over its monetary policy to the Bank of England (BOE).These moves on the macroeconomic front transformed Britain into one of the most stable economies in the European Union and G-7 nations, resulting in a growth of 3.7% for the second quarter in 2004. That was not just the fastest growth in almost four years on a quarterly basis, but it was also well above the average economic growth rate of around 2.5% year-on-year basis. Economic growth in Britain had slowed down after 2000 due to reasons like the global economic slowdown caused by high oil prices, collapse in the new economy, poorly performing equity markets, uncertainty following the September 11 attacks, the Iraq War, etc. The rising pound, particularly against euro, affected the export sector. In addition, retrenchments by UK companies for the excess investments made at the time of the hi-tech boom, sharp fall in the profitability and high corporate debts greatly affected the economy. But the downturn in the economy was very modest and this was muffled by the boost in government spending. Low interest rates have supported consumer spending and housing markets are offset by the falling equity prices.