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Economy of the United Kingdom
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The United Kingdom has a capitalist economy that in 2007 was the fifth largest in the world in terms of market exchange rates and the sixth largest by purchasing power parity (PPP). It was the second largest economy in Europe after Germany's in the same year, but may have since fallen behind France on a nominal basis due to the fall of the pound against the euro. Its GDP PPP per capita in 2007 was the 22nd highest in the world. The United Kingdom is also a member of the G8, the Organisation for Economic Co-operation and Development, and the European Union.
The UK was the first country in the world to industrialise in the 18th and 19th centuries, and for much of the 19th century possessed a predominant role in the global economy.
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The United Kingdom has a capitalist economy that in 2007 was the fifth largest in the world in terms of market exchange rates and the sixth largest by purchasing power parity (PPP). It was the second largest economy in Europe after Germany's in the same year, but may have since fallen behind France on a nominal basis due to the fall of the pound against the euro. Its GDP PPP per capita in 2007 was the 22nd highest in the world. The United Kingdom is also a member of the G8, the Organisation for Economic Co-operation and Development, and the European Union.
The UK was the first country in the world to industrialise in the 18th and 19th centuries, and for much of the 19th century possessed a predominant role in the global economy. However, by the late 19th century, the Second Industrial Revolution in the United States meant the US had begun to challenge Britain's role as the leader of the global economy. The extensive war efforts of both World Wars in the 20th century and the dismantlement of the British Empire also weakened the UK economy in global terms, and by that time Britain had been superseded by the United States as the chief player in the global economy. At the start of the 21st century however, the UK still possesses a significant role in the global economy, due to its large Gross Domestic Product and the financial importance that its capital, London, possesses in the world.
The United Kingdom is one of the world's most globalised countries. The capital, London (see Economy of London), is a major financial centre of the world, in front of New York City, Hong Kong and Singapore according to a report compiled by the City of London. The British economy is made up (in descending order of size) of the economies of England, Scotland, Wales and Northern Ireland. In 1973, the UK acceded to the European Economic Community which is now known as the European Union after the ratification of the Treaty of Maastricht in 1993.
In the 1980s, under the Government of Margaret Thatcher, most state-owned enterprises in the industrial and service sectors, which since the 1940s had been nationalised, were privatised. The British Government now owns very few industries or businesses - Royal Mail is one example. Following the end of World War II, despite a largely prosperous period in the 1950s and 1960s, the British economy recorded weaker growth than other European nations and by the 1970s was referred to as the "sick man of Europe", a reference to a similar moniker applied to the Ottoman Empire around World War I. However, the 1980s saw a new economic boom and in recent years Britain has seen the longest period of sustained economic growth for more than 150 years, having grown in every quarter since 1992. This ended in 2008 when the United Kingdom entered a recession bought about by the global financial crisis.
It is one of the strongest EU economies in terms of inflation, interest rates and unemployment, all of which remain relatively low. The United Kingdom, according to the International Monetary Fund, in 2007 had the ninth highest level of GDP per capita in the European Union in terms of purchasing power parity, after Luxembourg, Ireland, the Netherlands, Austria, Denmark, Sweden, Belgium and Finland. However, in common with the economies of other English-speaking countries, it has higher levels of income inequality than many European countries. During August 2008 the IMF has warned that the UK economic outlook has worsened due to a twin shock: financial turmoil as well as rising commodity prices. Both developments harm the UK more than most developed countries, as the UK obtains revenue from exporting financial services while recording deficits in finished goods and commodities, including food.
The UK has the world's third largest current account deficit, despite significant oil revenues. This is mainly the result of a large deficit in the trade in manufacture goods. During May 2008, the IMF advised the UK government to broaden the scope of fiscal policy to promote external balance. Although the UK's "labour productivity per person employed" has been progressing well over the last two decades and has overtaken productivity in the united Germany, it lags around 20% behind France's level, where workers have a 35-hour working week. The UK's "labour productivity per hour worked" is currently on a par with the average for the "old" EU (15 countries). The United Kingdom currently ranks 16th on the Human Development Index.
Recent economic growth
The most recent official figure, from the ONS, for annual UK GDP growth is 3.1% (2007 compared to 2006). croeconomic trend
This is a chart of trend of gross domestic product of United Kingdom at market prices by the International Monetary Fund with figures in millions of British Pounds Sterling.
| Year | Gross domestic product | US dollar exchange | Inflation index (2000=100) |
|---|
| 1925 | 4,466 | £0.21 | | | 1930 | 4,572 | £0.21 | | | 1935 | 4,676 | £0.20 | | | 1940 | 7,117 | £0.26 | | | 1945 | 9,816 | £0.25 | | | 1950 | 13,162 | £0.36 | | | 1955 | 19,264 | £0.36 | | | 1960 | 25,678 | £0.36 | | | 1965 | 35,781 | £0.36 | | | 1970 | 51,515 | £0.42 | | | 1975 | 105,773 | £0.45 | | | 1980 | 230,695 | £0.42 | 43 | | 1985 | 354,952 | £0.77 | 60 | | 1990 | 557,300 | £0.56 | 76 | | 1995 | 718,383 | £0.63 | 92 | | 2000 | 953,576 | £0.65 | 100 | | 2005 | 1,209,334 | £0.54 | 107 |
For purchasing power parity comparisons, the US Dollar is exchanged at £0.66.
Industries
Agriculture, hunting, forestry, and fishing
Agriculture is intensive, highly mechanised, and efficient by European standards, producing about 60% of food needs with less than 2% of the labour force (477,000 out of a total workforce of 31,598,000, 3rd quarter of 2007) . It contributes around 2% of GDP. Around two-thirds of the production is devoted to livestock, one-third to arable crops. The main crops that are grown are wheat, barley, oats, oilseed rape, maize for animal feeds, potatoes and sugar beet. New
crops are also emerging, such as linseed for oil and hemp for fibre production. The main livestock which are raised are cattle, chickens (the UK is the second largest poultry producer in Europe after France) and sheep. Agriculture is subsidised by the European Union's Common Agricultural Policy.
The UK retains a significant, although vastly reduced, fishing industry. Its fleets bring home fish ranging from sole to herring. Kingston upon Hull, Grimsby, Fleetwood, Great Yarmouth, Peterhead, Fraserburgh, and Lowestoft are among the coastal towns that have fishing industries.
The Blue Book 2006 (page 110) reports that the "Agriculture hunting, forestry and fishing" sector added gross value of £10,323 million (at 2006 prices) to the UK economy in 2004.
Production
Mining and quarrying
The Blue Book 2006 reports that this sector added gross value of £21,876 million to the UK economy in 2004.
Manufacturing
In 2003, manufacturing industry accounted for 16% of national output in the UK and for 13% of employment, according to the Office for National Statistics. This is a continuation of the steady decline in the importance of this sector to the British economy since the 1960s, although the sector is still important for overseas trade, accounting for 83% of exports in 2003. The regions with the highest proportion of employees in manufacturing were the East Midlands and West Midlands (at 19 and 18% respectively). London had the lowest at 6%.
Although the manufacturing sector's share of both employment and the UK's GDP has steadily fallen since the 1960s, data from the OECD shows that manufacturing output in terms of both production and value has steadily increased since 1945. This is a trend common in many mature Western economies. Heavy industry, employing many thousands of people and producing large volumes of low-value goods (such as steelmaking) has either become highly efficient (producing the same amount of output from fewer manufacturing sites employing fewer people- for example, productivity in the UK's steel industry increased by a factor of 8 between 1978 and 2006 ) or has been replaced by smaller industrial units producing high-value goods (such as the aerospace and electronics industries).
Engineering and allied industries comprise the single largest sector, contributing 30.8% of total Gross Value Added in manufacturing in 2003. Within this sector, transport equipment was the largest contributor, with 8 global car manufacturers being present in the UK – BMW (MINI, Rolls-Royce), Tata (Jaguar-Land Rover), General Motors (Vauxhall Motors), Honda, Nissan, Toyota and Volkswagen (Bentley) with a number of smaller, specialist manufacturers (including Lotus and Morgan) and commercial vehicle manufacturers (including Leyland Trucks, LDV, Alexander Dennis, JCB, the main global manufacturing plant for the Ford Transit, Manganese Bronze and Case-New Holland) also being present. The British motor industry also comprises numerous components for the sector, such as Ford's diesel engine plant in Dagenham, which produces half of Ford's diesel engines globally.
A range of companies like Brush Traction and Hunslet manufacture railway locomotives and other related components. Associated with this sector are the aerospace and defence equipment industries. The UK manufactures a broad range of equipment, with the sector being dominated by BAE Systems (which manufactures civil and defence aerospace, land and marine equipment) VT Group (one of the world's largest builders of warships), GKN and Rolls Royce who manufacture aerospace engines and power generation systems. Commercial shipbuilders include Harland and Wolff, Cammell Laird, Abels, Barclay Curle and Appledore. Companies such as Fairline Boats and Sunseeker are major builders of private motor yachts.
Another important component of Engineering and allied industries is electronics, audio and optical equipment, with the UK having a broad base of domestic firms, alongside a number of foreign firms manufacturing a wide range of TV, radio and communications products, scientific and optical instruments, electrical machinery and office machinery and computers.
Chemicals and chemical-based products are another important contributor to the UK's manufacturing base. Within this sector, the pharmaceutical industry is particularly successful, with the world's second and third largest pharmaceutical firms (GlaxoSmithKline and AstraZeneca respectively) being based in the UK and having major research and development and manufacturing facilities there.
Other important sectors of the manufacturing industry include food, drink, tobacco, paper, printing, publishing and textiles. The UK is also home to three of the world's biggest brewing companies: Diageo, SABMiller and Scottish and Newcastle, other major manufacturing companies such as Unilever, Cadbury, Tate & Lyle, British American Tobacco, Imperial Tobacco, EMAP, HarperCollins, Reed Elsevier, Ben Sherman, Burberry, French Connection, Reebok, Pentland Group and Umbro being amongst the largest present.
The Blue Book 2006 reports that this sector added gross value of £147,469 million to the UK economy in 2004.
Manufacturing is an important sector of the modern British economy and there is a considerable amount of published research on the subject of the factors affecting its growth and performance. Of late, such things as increases in taxation and regulation have tended to diminish the favourableness of the political-legal environment for UK industry. Within manufacturing, British firms and industries have often lagged behind their overseas competitors in terms of productivity and various other key performance measures. However, Britain – the birthplace of the Industrial Revolution – continues to be one of the most attractive countries in the world for direct foreign industrial investment.
Electricity, gas and water supply
The Blue Book 2006 reports that this sector added gross value of £17,103 million to the UK economy in 2004. Great Britain is expected to launch the building of new nuclear reactors to replace existing generators and to boost UK's energy reserves.
Construction
The Blue Book 2006 reports that this industry added gross value of £64,747 million to the UK economy in 2004.
Service industries
The service sector is the dominant sector of the UK economy, a feature normally associated with the economy of a developed country. This means that the Tertiary sector jobs outnumber the Secondary and Primary sector jobs.
Wholesale and retail trade
This sector includes the motor trade, auto repairs, personal and household goods industries. The Blue Book 2006 reports that this sector added gross value of £127,520 million to the UK economy in 2004.
Hotels and restaurants
The Blue Book 2006 reports that this industry added gross value of £33,074 million to the UK economy in 2004.
Transport, storage and communication
The Blue Book 2006 reports that the transport and storage industry added gross value of £49,516 million to the UK economy in 2004 while the communication industry added a gross value of £29,762 million.
Financial intermediation
London is the world's largest financial centre, with financial services based around two districts: 'The City' (the City of London) and the Docklands (particularly around Canary Wharf). The City houses the London Stock Exchange (shares and bonds), London Metal Exchange (Base Metal and Plastic futures), Lloyds of London (insurance), and the Bank of England. The Docklands began development in the 1980s and is now home to the Financial Services Authority, as well as several important financial institutions (such as Barclays Bank, Citigroup and HSBC). There are now over 500 banks with offices in the City and Docklands, with the majority of business in London being conducted on an international basis, with established leads in areas such as Eurobonds, Foreign exchange markets, energy futures and global insurance. The Alternative Investments Market has acted a growth market over the past decade, allowing London to also expand as an international equity centre for smaller firms.
The United Kingdom had £21bn of financial exports in 2005, contributing significantly towards the Balance of Payments. The UK has had an expanding export business in financial service, which has been influenced by a mixture of unique institutions, light regulation, and a highly skilled workforce.
Edinburgh also has a long established financial industry, the fifth largest financial centre in Europe, with many large firms based there, including the Royal Bank of Scotland (the second largest bank in Europe), HBOS (owners of the Bank of Scotland) and Standard Life Insurance.
Several of the major English cities have large financial sectors & related services, notably the Leeds city region which is home to several large banks & building societies and is vital for communication industry as it is claimed a 3rd of all internet trafic goes through Leeds. Manchester also has a large financial sector, including the Co-Operative Financial Services, who run the most successful ethical fund in the UK and are the only major unit managers outside of London & Edinburgh. Manchester also has the largest professional services sector outside the South East, particularly legal activities.
The Blue Book 2006 reports that this industry added gross value of £86,145 million to the UK economy before adjustment of financial services valued at £50,165 million in 2004.
Real estate and lettings
The UK property market has been booming for the past seven years and in some areas property has trebled in value over that period. The increase in property prices has a number of causes — sustained economic growth, an expansion in household numbers (including high immigration into certain regions), low interest rates, the growth in property investment, and restriction in the supply of new housing (through planning restrictions).
The UK property market initially peaked in July 2004 and had been static or falling in the capital and some other areas until late 2005. This had led many to start worrying about the possibility of a house price crash, many predicting the end of a major British property bubble. However, the property market strengthened considerably in the first half of 2006, showing particular strength in the capital. This has led many analysts to revise previously negative assessments of the market, with most now predicting continued modest growth in prices in the mid-term. However, since around September 2007, house prices have been falling consistently, arguably contributing to the negative UK economic growth of the 3rd Quarter 2008 .
A house price crash would be very damaging at the present time due to record levels of household debt. There are an increasing numbers of bankruptcies and home repossessions which has worried some economists. This has led many to propose that a correction in house prices would lead much of the country into a lengthy recession. In contrast however, first time buyers who currently have assets not consisting of residential property, but with no way of attaining residential property (in some cases at all, and in others without undertaking unsustainable debt amounting to on average up to 5 times their annual salary), would be better off, and able to enter the property market.
The rapid increase in Buy to Let speculators since 2000 of has created an artificial shortage of homes. The effect has been to price many first time buyers out of the market; they have declined from around 50% of sales to 25%, virtually equal to the expansion in Buy to Let. In London a survey in 2006 found that 67% of new properties were sold to Buy to Let speculators. This and planning restriction requiring builders to use brown field sites, has led to rapid growth in one and two bedroom apartments in cities such as Manchester, Leeds and Nottingham, creating an over supply of this type of property. Banks have relaxed their lending requirements for Buy to Let buyers from 75% of the value the of property in 2003 to 85%, effectively creating a highly geared investment that relies on rising prices. The perception of a housing shortage, despite there being little evidence of any shortage of property to rent (if not buy), means that most UK buyers believe property prices will always rise and any fall only be small and temporary.
This sector includes letting of dwellings and other related business support activities. The Blue Book 2006 reports that the lettings industry added gross value of £83,037 million to the UK economy in 2004 while other real estate and business support activities added gross value of £175,333 million.
Public administration and defence
The Blue Book 2006 reports that this sector added gross value of £55,280 million to the UK economy in 2004.
Education
The Blue Book 2006 reports that this sector added gross value of £61,786 million to the UK economy in 2004.
Health and social work
The Blue Book 2006 reports that this sector added gross value of £75,817 million to the UK economy in 2004.
Other social and personal services
This sector includes value added by private households with employees and extra-territorial organisations. The Blue Book 2006 reports that this sector added gross value of £55,543 million to the UK economy in 2004.
Currency
Until relatively recently there was debate over whether or not the UK should abolish its currency Pound Sterling and join the Euro. The British Prime Minister, Gordon Brown, pledged at the time to hold a public referendum based on certain tests he set as Chancellor of the Exchequer.
When assessing the tests, Gordon Brown concluded that while the decision was close, the United Kingdom should not yet join the Euro. In particular, he cited fluctuations in house prices as a barrier to immediate entry. Public opinion polls have shown that a majority of Britons have been opposed to joining the single currency for some considerable time and this position has now hardened further. The main opposition party, the Conservative party, are opposed to membership.
Exchange rates
(average for of each year), in USD (US Dollar) and EUR (euro) per GBP; and inversely: GBP per USD and EUR. (Synthetic Euro XEU before 1999). Caution: these averages conceal wide intra-year spreads. The coefficient of variation gives an indication of this. It also shows the extent to which the pound tracks the euro or the dollar. Note the effect of Black Wednesday in late 1992 by comparing the averages for 1992 with the averages for 1993.
| Year | £/USD | USD/£ | C.Var | | £/XEU | XEU/£ | C.Var | | 1990 | £0.5633 | $1.775 | | | £0.7161 | 1.397 | | | 1991 | £0.5675 | $1.762 | | | £0.7022 | 1.424 | | | 1992 | £0.5699 | $1.755 | | | £0.7365 | 1.358 | | | 1993 | £0.6663 | $1.501 | | | £0.7795 | 1.283 | | | 1994 | £0.6536 | $1.530 | | | £0.7742 | 1.292 | | | 1995 | £0.6338 | $1.578 | | | £0.8200 | 1.220 | | | 1996 | £0.6411 | $1.560 | | | £0.8029 | 1.245 | | | 1997 | £0.6106 | $1.638 | | | £0.6909 | 1.447 | | | 1998 | £0.6037 | $1.656 | | | £0.6779 | 1.475 | | |
| Year | £/USD | USD/£ | C.Var | | £/EUR | EUR/£ | C.Var | | 1999 | £0.6185 | $1.617 | | | £0.6595 | €1.516 | | | 2000 | £0.6609 | $1.513 | | | £0.6099 | €1.640 | | | 2001 | £0.6943 | $1.440 | | | £0.6223 | €1.607 | | | 2002 | £0.6664 | $1.501 | | | £0.6289 | €1.590 | | | 2003 | £0.6123 | $1.633 | | | £0.6924 | €1.444 | | | 2004 | £0.5461 | $1.832 | 2.26% | | £0.6787 | €1.474 | 1.92% | | 2005 | £0.5500 | $1.820 | 3.47% | | £0.6842 | €1.462 | 1.27% | | 2006 | £0.5435 | $1.842 | 3.79% | | £0.6821 | €1.466 | 1.11% | | 2007 | £0.4999 | $2.001 | 1.97% | | £0.6848 | €1.461 | 2.40% | | 2008 | £0.5499 | $1.835 | tbc | | £0.7964 | €1.226 | tbc |
1 GBP in USD since 1971
- Source: OANDA.COM
- For consistency and comparison purposes, coefficient of variation is measured on both the "per pound" ratios, although it is conventional to show the forex rates as dollars per pound and pounds per euro.
Regional variation
The strength of the UK economy varies from region to region. GVA, and GVA per capita is highest in London. The following table shows the GVA (2006) per capita of the 12 NUTS:2 areas, with data supplied by the Office for National Statistics .
Two of the richest 10 areas in the European Union are in the United Kingdom. Inner London is number 1 with a GDP per capita of €65 138, and Berkshire, Buckinghamshire and Oxfordshire is number 7 with a GDP per capita of €37 379.
Taxation and borrowing
Taxation in the United Kingdom may involve payments to at least two different levels of government: local government and central government (HM Revenue & Customs). Local government is financed by grants from central government funds, business rates, council tax and increasingly from fees and charges such as those from on-street parking. Central government revenues are mainly income tax, national insurance contributions, value added tax, corporation tax and fuel duty.
These data show the tax burden (personal and corporate) and national debt as a percentage of GDP. Samples are taken at 10 year intervals (snapshots, but the rolling averages are very close).
| Year | Tax | Debt |
|---|
| 1975/6 | 54% | 43% | | 1985/6 | 44% | 43% | | 1995/6 | 43% | 38% | | 2005/6* | 46% | 40% | |
- (Source: HM Treasury Public Finances Databank)
- (* — Projected)
The money Gross Domestic Product (GDP) for the United Kingdom, at market prices, in 2005 was £1,211 billion (or $2,431 billion) according to HM Treasury in March 2006.
Income distribution
lowest 10%
highest 10% | (1999)
2.1%
28.5% | | Consumer prices inflation | RPI: 3% (2004), CPI: 1.6% (2004) | Labour force composition
services
government
manufacturing/construction
energy
agriculture
| (2004)
46%
28%
24%
1%
1% | | Industrial growth | -0.3% (1999) | | Electricity production | 382.7 TWh (2004) | | exports | 0.77% | Electricity production composition
fossil fuel
hydro
nuclear
renewables
imports | (2004)
74.13%
1.1%
19.26%
3.55%
1.96% | | Electricity consumption | 337.4 TWh (2003) | | Electricity exports | 2.959 TWh (2003) | | Electricity imports | 5.119 TWh (2003) | | Agriculture products | cereals, oilseed, potatoes, vegetables; cattle, sheep, poultry; fish | | Exported commodities | manufactured goods, fuels, chemicals; food, beverages (notably Scotch whisky), tobacco | | Imported commodities | manufactured goods, machinery, fuels; foodstuffs |
Exports
In 2007 UK exports were valued at £220bn.
- Food and drink exports were valued at £9.7bn (2005)
- UK total arms exports were valued at £7.1bn (2005)
UK export figures are boosted 10% by high levels of Missing trader fraud according to the Office for National Statistics.
Poverty
In 2002 the percentage of population below the 'Poverty Line' (Household income below 60 per cent of median income) stood at 17%. This has fallen steadily over recent years to a low of 14% in 2006, the last year for which figures are available.
See also
External links
- WSWS
- [https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html CIA World Factbook]
- and
- August 2006
- UK Imports & Exports
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