Economy of the United Kingdom

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Economy of the United Kingdom
Currency 1 Pound Sterling (£) = 100 pence (p)
Fiscal year April 1March 31
Trade Organizations EU,BCN,WTO and OECD
Statistics
GDP (PPP) 6th
GDP (PPP) per capita ranking (2005) 18th
GDP (PPP) (2005) $1.869 trillion
GDP growth rate (2005) 1.8%p.a.
GDP per capita (2005) $30,309
GDP per square kilometre (2005) $7,659,836
GDP per barrel (2005) $3,393
GNH (2005) $36,117
GDP by sector (2006) agriculture (1%), industry (26.5%), services (72.6%)
Inflation rate on CPI (2006) 2.4%
Poverty rate (2002) 17%
Labour force (2003) 29.6m
Labour force by occupation (2002) services (74%), industry (25%), agriculture (1%)
Unemployment rate (2006) 5.5%
Main Industries machine tools, industrial equipment, scientific equipment, shipbuilding, aircrafts, motor vehicles and parts, electronic machinery, computers, processed metals, chemical products, coal mining, oil production, paper, food processing, textiles, clothing, and other consumer goods
Trading Partners
Exports (2005) $312.03bn
Main Partners (2004) USA 15%, Germany 11.4%, France 9.7%, Ireland 7.4%,Netherlands 6.3%, Belgium 5.5%, Spain 4.8%, Italy 4.4%
Imports (2005) $359.68bn
Main Partners (2004) Germany 14.1%, USA 8.7%, France 8%, Netherlands 7.2%, Belgium 5.5%, Italy 4.9%, China 4.1%, Ireland 4%
Public Finances
Public Debt/Public Sector Net Cash Requirement (PSNCR)/ Public Sector Borrowing Requirement (PSBR) (2006) 39 Billion
External Debt (1998) N/A
Revenues (2003) $688.9bn
Expenses (2003) $746.1bn
Economic Aid Donor (2004) $4.2bn

The United Kingdom has the fifth largest gross domestic product in the world in terms of market exchange rates and the sixth largest by purchasing power parity (PPP). It has the second largest economy in Europe (after Germany), as well as being a member of the European Union and the G8. The capital, London, along with New York City, one of the two largest financial centres in the world. The British economy is often described as an 'Anglo-Saxon economy'.

It is made up of (in order of how much they contribute), the economies of England, Scotland, Wales and Northern Ireland.

Since the 1980s, and particularly under the Government of Margaret Thatcher, many state enterprises, which since the 1940s had been nationalised, were privatised.

The British economy has in recent years seen the longest period of sustained economic growth for more than 150 years, and is one of the strongest European Union economies in terms of inflation, interest rates and unemployment, all of which remain relatively low. However, it has one of the highest levels of income inequality within the EU. British GDP grew by 1.8% in 2005 and is currently growing at an annual rate of 2.7% [1]. Chancellor Gordon Brown attributed this slower than expected growth in 2005 mainly to the high price of oil, the easing of house price increases and the subsequent slowdown in consumer spending. However, GDP growth is expected to increase in 2006 and in subsequent years [2].

Contents

[edit] Energy resources

The UK has large coal, natural gas, and oil reserves; primary energy production accounts for 10% of GDP, one of the highest shares of any industrial nation.

Due to North Sea oil, during the 1990s the UK became a net hydrocarbon exporter, and the second largest producer of oil in western Europe after Norway. In June 2004 hydrocarbon exports fell below imports for the first time, although they are not expected to do so permanently for some years.

About 80% of UK electricity is currently generated from fossil fuels; nuclear power and an increasing contribution from wind turbines make up the bulk of the remainder. The UK is the world's 7th greatest producer of carbon emissions, producing around 2.3% of the total generated from fossil fuels. The government is a signatory to the Kyoto Protocol and has launched a Climate Change Programme to reduce emissions significantly beyond the Kyoto commitments.

Due to the island location of the UK, the country has great potential for generating electricity from offshore windfarms, wave power and tidal power, although these have not yet been exploited on a meaningful commercial scale and there is need for the energy policy of the United Kingdom to stimulate those sectors if they are to become viable. A March 2006 report by the British Wind Energy Association suggested that onshore windfarms should be able to supply nearly 5% of the national electricity requirements by 2010 [3].

Some of the United Kingdom's leading companies are based in this sector including: BP, Royal Dutch Shell, Cairn Energy, Centrica, BHP Billiton, Anglo American and the Rio Tinto Group.

main article: Energy use and conservation in the United Kingdom

[edit] Macro-economic trend

This is a chart of trend of gross domestic product of United Kingdom (since partition) at market prices estimated by the International Monetary Fund with figures in millions of British Pounds Sterling.

Year Gross Domestic Product US Dollar Exchange<ref>Lawrence H. Officer, "Exchange rate between the United States dollar and forty other countries, 1913 -1999." Economic History Services, EH.Net, 2002. URL: http://eh.net/hmit/exchangerates/</ref> 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

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For purchasing power parity comparisons, the US Dollar is exchanged at £0.66.

[edit] Industries

[edit] Agriculture 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. It contributes around 2% of GDP. Around two thirds of production is devoted to livestock, one third to arable crops. The main crops that are grown are wheat, barley, oats, potatoes, sugar beets, fruits and vegetables. The livestock which are raised are cattle and sheep. Agriculture is heavily subsidised by the European Union's Common Agricultural Policy and it is not known how large a sector it would be if free market rules applied. The GDP from the farming sector is argued by some to be a small return on the subsidies given.

The UK is one of the world's leading fishing nations. Its fleets bring home fish of every kind, ranging from sole to herring. Kingston upon Hull, Grimsby, Fleetwood, Great Yarmouth, Peterhead, Fraserburgh, and Lowestoft are among the coastal towns that have large fishing industries.

[edit] Manufacturing

In 2003, the latest year for which comparable statistics are available, the 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%.

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), Ford (Premier Automotive Group), General Motors (Vauxhall Motors), Honda, Nissan, PSA, Toyota and Volkswagen (Bentley) with a number of smaller, specialist manufacturers (including TVR, Lotus and Morgan) and commercial vehicle manufacturers (including Leyland Trucks, LDV, Alexander Dennis, JCB, Manganese Bronze and Case-New Holland) also being present. A range of companies like Brush Traction 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, GKN and Rolls Royce who manufacture aerospace engines and power generation systems.

Another important component of Engineering and allied industries is electronics, audio and optical equipment, with the UK having a broad base of domestic firms like Amstrad, Alba, ARM, Dyson, Invensys, Wolfson, Linn, Nallatech and Axeon, 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 worlds biggest Brewing companies; Diageo, Sabmiller and Scottish and Newcastle. Other major manufacturing companies such as Unilever, Cadbury Schweppes, 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.

[edit] Services

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The service sector is the dominant sector of the UK economy, normally a sign of an advanced economy. This means that the Quarternary and Tertiary sector jobs outnumber the Secondary and Primary sector jobs.

[edit] Retailing

The UK has a mixture of large shopping facilities with both large 'out of town' stores and in town shopping centres in existence. Local shops and 'convenience stores' continue to play an important role in retailing, though brand operators have continued to gain ground in recent years, with notable complaints being raised about operators such as Tesco which has moved into town centre facilities (through brands such as its Tesco Express and Tesco Metro) as well as operating its larger hypermarkets. The retail market remains highly competitive and accounts for £249bn (about 22%) of GDP.

[edit] Financial services

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), 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.

[edit] Tourism

Tourism is the 6th largest industry in the UK, contributing £76bn pounds to the economy. It employs 1,800,000 full-time equivalent people — 6.1% of the working population (2002 figures) [4].

[edit] Creative industries

The creative industries including advertising, film and television production, product design, book and music publishing and the fine art and antiques markets have seen some of the largest growth in the UK economy in the last two decades. According to the Department for Culture, Media and Sport the sector has grown 6% per annum since 1997 against 3% for the whole UK economy and represents 8% of the entire UK economy generating £11 bn in exports. English as the international standard of film and television market supports the market for both product and talent and the existence of the state subsidised BBC creates a large pool of trained industry technicians. The UK was an early and enthusiastic market for home computers in the 1980s creating a strong base for a leisure software and video game industry. This generated £488 million in exports during 2003, compared to £256 million for the native UK film industry. A relaxed attitude to taxation of art and antique sales has also helped London eclipse other European capitals as a centre for the art market marked by the growth of contemporary art fairs and the number of commercial art dealers based in the city.

[edit] Currency

The relatively good economic performance has complicated the Blair government's efforts to make a case for Britain to leave the Pound Sterling and join the Euro. The British Prime Minister has pledged to hold a public referendum if membership meets Chancellor of the Exchequer Gordon Brown's "five economic tests". The tests are:

  1. Are business cycles and economic structures compatible with European interest rates on a permanent basis?
  2. If problems emerge, is there sufficient flexibility to deal with them?
  3. What impact would entry into the Euro have on the UK's financial services industry?
  4. Would joining the Euro create better conditions for firms making long-term decisions to invest in Britain?
  5. Would joining the Euro promote higher growth, stability and a lasting increase in jobs?

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. The tests will be reassessed in the future. Public opinion polls show that a majority of Britons are opposed to joining the single currency at this time.

[edit] Exchange rates

(average for whole 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. Note the effect of Black Wednesday in late 1992 by comparing the averages for 1992 with the averages for 1993.

Year £/USD £/XEU    USD/£ XEU/£
1990 £0.5633 £0.7161 $1.775 1.397
1991 £0.5675 £0.7022 $1.762 1.424
1992 £0.5699 £0.7365 $1.755 1.358
1993 £0.6663 £0.7795 $1.501 1.283
1994 £0.6536 £0.7742 $1.530 1.292
1995 £0.6338 £0.8200 $1.578 1.220
1996 £0.6411 £0.8029 $1.560 1.245
1997 £0.6106 £0.6909 $1.638 1.447
1998 £0.6037 £0.6779 $1.656 1.475
Year £/USD £/EUR    USD/£ EUR/£
1999 £0.6185 £0.6595 $1.617 €1.516
2000 £0.6609 £0.6099 $1.513 €1.640
2001 £0.6943 £0.6223 $1.440 €1.607
2002 £0.6664 £0.6289 $1.501 €1.590
2003 £0.6123 £0.6924 $1.633 €1.444
2004 £0.5460 £0.6788 $1.831 €1.473
2005 £0.5500 £0.6842 $1.821 €1.463
Source: OANDA.COM [5]

[edit] Regional variation

The strength of the UK economy varies from region to region. GDP, and GDP per capita is highest in London. The following table shows the GDP (2002) per capita of the 12 NUTS:2 areas, with data supplied by Eurostat.

Rank Place GDP per capita
in Pounds Sterling
1 London, England 27 445
2 South East, England 18 564
3 Scotland 16 284
4 East of England 15 976
5 South West, England 15 789
6 West Midlands, England 15 152
7 East Midlands, England 14 994
8 North West, England 14 953
9 Yorkshire and the Humber, England 14 953
10 Northern Ireland 13 430
11 North East, England 13 184
12 Wales 13 084

Two of the richest 10 areas in the European Union are in the United Kingdom. Inner London is number 1 with a €66 761 GDP per capita; Berkshire, Buckinghamshire and Oxfordshire are number 7 with a €34 251 GDP per capita.

[edit] Property Market

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 — greater growth, a well managed economy, low interest rates, the growth in property investment and specifically buy-to-let.

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. [6]

A house price crash would be very damaging at the present time due to debt at record levels. Increasing numbers of bankruptcies and home repossessions are worrying many economists, who think that a correction in house prices would lead the country into a lengthy recession.

[edit] 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)

[edit] Other statistics

The money Gross Domestic Product (GDP) for the United Kingdom, at market prices, in 2005 was £1,211 billion (or $2,131 billion) according to HM Treasury in March 2006.

GDP % GDP for selected years, 2002 — 2006 est.:

Year GDP
in billions of USD PPP
1.9% (2005 est.) GDP Growth
2002 1575.906 2.0
2003 1640.829 2.5
2004 1736.377 3.2
2005 1825.837 1.9
2006 1910.818 2.2
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

[edit] See also

[edit] External links


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