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Economy of the United Kingdom

Economy of the United Kingdom
Currency 1 Pound Sterling (£) = 100 pence (p)
Fiscal year April 1 – March 31
Trade Organisations EU, WTO and OECD
Statistics
GDP Ranking (2005) 4th by nominal volume; 13th by nominal volume per capita; 6th by volume adjusted for PPP; 16th per capita adjusted for PPP.
GDP (2003) $1,666bn
GDP growth rate (2004) 3.0%
GDP per Capita (2003) $28,237
GDP by sector (2003) agriculture (0.9%), industry (26.5%), services (72.6%)
Inflation rate (2003) 1.4%
Pop below poverty line (2002) 17%
Labour force (2003) 29.6m
Labour force by occupation (2002) services (74%), industry (25%), agriculture (1%)
Unemployment rate (2003) 5%
Main Industries machine tools, electric power equipment, automation equipment, railroad equipment, shipbuilding, aircraft, motor vehicles and parts, electronics and communications equipment, metals, chemicals, coal, petroleum, paper and paper products, food processing, textiles, clothing, and other consumer goods
Trading Partners
Exports (2003) $304.5bn
Main Partners (2003) USA 15.7%, Germany 10.5%, France 9.5%, Netherlands 6.9%, Ireland 6.5%, Belgium 5.6%, Spain 4.4%, Italy 4.4%
Imports (2003) $363.6bn
Main Partners (2003) Germany 13.5%, USA 10.2%, France 8.1%, Netherlands 6.3%, Belgium 4.9%, Italy 4.7%
Public Finances
Public Debt $849bn (51% of GDP)
External Debt (1998) N/A
Revenues (2003) $688.9bn
Expenses (2003) $746.1bn
Economic Aid (2001) $4.5bn

The United Kingdom, a leading trading power and financial centre, has the fourth largest economy in the world, the second largest in Europe, and is a member of the European Union. Its capital, London, is the largest financial centre in the world.

Since the 1980s, and particularly under the Government of Margaret Thatcher, many state enterprises that were nationalised in the 1940s have been privatised.

GDP growth slipped in 20012002 as the global downturn, the high price of the Pound Sterling, and the bursting of the "new economy" bubble hurt manufacturing and exports. However the UK economy is one of the strongest of the larger Europe economies; inflation, interest rates, and unemployment remain low. Growth is now at 3.0% per annum, which is higher than that of France, Germany and many other European countries.

Table of contents

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.

Around 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 8th 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 commercial basis.

Industries

Service industries, particularly banking, insurance, and business services, account by far for the largest proportion of GDP and employ around 70% of the working population.

Manufacturing continues to decline in importance. In the 1960s and 70s manufacturing was a significant part of the UK's economic output. However a lot of the heavy manufacturing industry was goverment run and had failed to respond to world markets. State industries were sold off and over the 20th century many (and others) closed as it was unable to compete. For example in 2005 the country's last volume car maker, the MG Rover Group, went into administration after failing to come to agreement with the SIAC group of China to form a joint venture that might have saved the company. The UK is left with a very small domestic manufacturing sector, though British companies world wide continued to have a role in the sector through foreign investment. Closure of UK factories and movement of manufacturing to eastern Europe and the "Far East" in search of lower costs (especially through lower wages and less strict employment laws) contines to benefit share-holders but not the UK economy as a whole.

Tourism

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

Agriculture

Agriculture is intensive, highly mechanised, and efficient by European standards, producing about 60% of food needs with only 1% 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 that is raised is 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.


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.

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 Euros
1 London, England 40 068
2 South East, England 27 104
3 Scotland 23 776
4 East of England 23 325
5 South West, England 23 052
6 West Midlands, England 22 123
7 East Midlands, England 21 892
8 North West, England 21 878
9 Yorkshire and the Humber, England 21 832
10 Northern Ireland 19 608
11 North East, England 19 249
12 Wales 19 103

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

Taxation and Borrowing

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 36% 40% (Projected)
(Source: HM Treasury Public Finances Databank)

Other Statistics

Income distribution
 lowest 10%
 highest 10%
(1986)
2.4%
24.7%
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 395.9 TWh (2003)
Electricity production composition
 fossil fuel
 hydro
 nuclear
 other
(2001)
73.8%
0.9%
23.7%
1.6%
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

Exchange rates

(average for month of June each year), in USD and EUR per GBP; and inversely: GBP per USD and EUR. (Synthetic euro XEU before 1999). Note the effect of Black Wednesday in late 1992.

Year  USD  XEU      1/USD  1/XEU
1990 1.71 1.40 0.58 0.71
1991 1.65 1.43 0.61 0.70
1992 1.85 1.42 0.54 0.70
1993 1.51 1.27 0.66 0.79
1994 1.52 1.29 0.66 0.78
1995 1.60 1.21 0.63 0.83
1996 1.54 1.25 0.65 0.80
1997 1.65 1.46 0.61 0.68
1998 1.65 1.50 0.61 0.67
Year  USD  XEU     1/USD  1/XEU
1999 1.60 1.54 0.63 0.65
2000 1.51 1.59 0.66 0.63
2001 1.40 1.65 0.71 0.61
2002 1.48 1.53 0.68 0.65
2003 1.66 1.42 0.60 0.70
2004 1.83 1.51 0.55 0.66
Source: OANDA.COM

See Also

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