Economy of the United Kingdom

Economy of United Kingdom

The City of London is the financial hub of the UK and the world.
Currency	Pound sterling (GBP)
Fiscal year	6 April – 5 April
Trade organisations	European Union, OECD, AIIB and World Trade Organization
Statistics
GDP	$2.729 trillion (nominal; 2016)[1]
GDP rank	5th (Nominal) / 9th (PPP)
GDP growth	+0.2% Q1 2017 ONS[2] +2.1% for year 2017[2]
GDP per capita	$42,106 (nominal; 13th; 2016)[3] $42,041 (PPP; 27th; 2016)[3]
GDP by sector	Agriculture: 0.6% Construction: 6.4% Production: 14.6% Services: 78.4% (2014 est.)
Inflation (CPI)	2.9% (May 2017)[4] RPI: 3.7% (May 2017)
Base borrowing rate	0.25%
Population below poverty line	15% (2014 est.)[5]
Gini coefficient	0.32 (2014)[6]
Labour force	32.01 million (May 2017) (Employment rate 74.9%)[7]
Labour force by occupation	Agriculture: 1.5% Industry: 18.8% Services: 79.7% (2011 est.)[8]
Unemployment	4.5%, 1.49 million (May 2017)[7]
Average gross salary	£26,500 / $34,000 annual, 2016 [9]
Average net salary	£21,100 / $27,000 annual, 2016 [10]
Main industries	List Aerospace Agriculture Automotive Business and professional services Chemicals Construction Consumer goods Defence equipment Education Electronics Energy Entertainment Financial services Food and beverages Healthcare Hospitality and leisure Industrial equipment Information technology Media Pharmaceuticals and biotechnology Processed metals Real estate Retailing Scientific equipment Telecommunications Tourism Transportation and logistics Utilities
Ease-of-doing-business rank	7th (2017)[11]
External
Exports	$674 billion (9th; 2015 est.)[12]
Export goods	List Manufactured goods Chemicals Food Beverages Tobacco Automotive vehicles and components Computer programming Finance Entertainment Clothes Fuel oil and petroleum products Industrial supplies and materials Military arms and equipment Pharmaceuticals Other.
Main export partners	2015:[13]  United States 14.6%  Germany 10.1%   Switzerland 7%  China 6%  France 5.9%  Netherlands 5.8%  Ireland 5.5%
Imports	$724 billion (6th; 2015 est.)[14]
Import goods	List Manufactured goods Machinery Fuels Foodstuffs
Main import partners	2015:[15]  Germany 14.8%  China 9.8%  United States 9.2%  Netherlands 7.5%  France 5.8%  Belgium 5%
FDI stock	Inward: $1.321 trillion (2012)(3rd)[16] Outward: $1.884 trillion (2013)(2nd)[17]
Current account	−£96.2 billion (2015)[18]
Gross external debt	$9,591 billion (2014) (2nd)
Net international investment position	−£182 billion / 9.1% GDP (2012)
Public finances
Public debt	£1.58 trillion (January 2016) (82.8% GDP)[19]
Revenues	£744 billion (2017–18 FY)[20] $965 billion (2017 est. CIA)
Expenses	£802 billion (2017–18 FY)[20] $1.04 trillion (2017 est. CIA)
Economic aid	0.7%, £13.3 billion (2017) (donor)
Credit rating	Standard & Poor's:[21] AA (domestic, foreign, and T&C assessment) (Outlook: Negative)[22] Moody's:[23] AA1 (Outlook: Negative) Fitch:[24] AA (Outlook: Negative)
Foreign reserves	$159.34 billion (1 January 2016, IMF) [25]

The economy of the United Kingdom is the fifth-largest national economy in the world measured by nominal gross domestic product (GDP), ninth-largest measured by purchasing power parity (PPP), and nineteenth-largest measured by GDP per capita, comprising 3.9% of world GDP.^[26] It is the second-largest economy in the European Union by both metrics.

In 2016, the UK was the tenth-largest goods exporter in the world and the fifth-largest goods importer. It also had the second-largest inward foreign direct investment,^[27] and the third-largest outward foreign direct investment.^[28] The UK is one of the most globalised economies,^[29] and it is composed of (in descending order of size) the economies of England, Scotland, Wales and Northern Ireland.

The service sector dominates the UK economy, contributing around 80% of GDP;^[30] the financial services industry is particularly important, and London is the world's largest financial centre.^[31] Britain's aerospace industry is the second-largest national aerospace industry.^[32] Its pharmaceutical industry, the tenth-largest in the world,^[33] plays an important role in the economy. Of the world's 500 largest companies, 26 are headquartered in the UK.^[34] The economy is boosted by North Sea oil and gas production; its reserves were estimated at 2.8 billion barrels in 2016,^[35] although it has been a net importer of oil since 2005.^[36] There are significant regional variations in prosperity, with South East England and North East Scotland being the richest areas per capita. The size of London's economy makes it the largest city by GDP in Europe.^[37]

In the 18th century the UK was the first country to industrialise,^[38][39][40] and during the 19th century it had a dominant role in the global economy,^[41] accounting for 9.1% of the world's GDP in 1870.^[42] From the late 19th century the Second Industrial Revolution was also taking place rapidly in the United States and the German Empire; this presented an increasing economic challenge for the UK. The costs of fighting World War I and World War II further weakened the UK's relative position. In the 21st century, however, it remains a global power and has an influential role in the world economy.^{[43][44][45][46][47][48]}

Government involvement in the British economy is primarily exercised by Her Majesty's Treasury, headed by the Chancellor of the Exchequer, and the Department for Business, Energy and Industrial Strategy. Since 1979 management of the economy has followed a broadly laissez-faire approach.^{[49][50][51][52][53][54]} The Bank of England is the UK's central bank and its Monetary Policy Committee is responsible for setting interest rates, quantitative easing, and forward guidance.

The currency of the UK is the pound sterling, which is the world's third-largest reserve currency after the United States dollar and the euro,^[55] and is also one of the ten most-valued currencies in the world.

The UK is a member of the Commonwealth of Nations, the European Union (although negotiations to leave the EU are currently taking place), the G7, the G8, the G20, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the Organisation for Security and Co-operation in Europe, the World Bank, the World Trade Organisation, Asian Infrastructure Investment Bank and the United Nations.

History

1945 to 1973

Following the end of the Second World War, the United Kingdom enjoyed a long period without a major recession; there was a rapid growth in prosperity in the 1950s and 1960s, with unemployment staying low and not exceeding 3.5% until the early 1970s.^[56] According to the OECD, the annual rate of growth (percentage change) between 1960 and 1973 averaged 2.9%, although this figure was far behind the rates of other European countries such as France, West Germany and Italy.^[57]

Deindustrialisation

Deindustrialisation meant the closure of operations in mining, heavy industry, and manufacturing, resulting in the loss of highly paid working-class jobs.^[58] The UK's share of manufacturing output had risen from 9.5% in 1830, during the Industrial Revolution, to 22.9% in the 1870s. It fell to 13.6% by 1913, 10.7% by 1938, and 4.9% by 1973.^[59] Overseas competition, lack of innovation, trade unionism, the welfare state, loss of the British Empire, and cultural attitudes have all been put forward as explanations for the industrial decline.^[60] It reached crisis point in the 1970s, with a worldwide energy crisis, high inflation, and a dramatic influx of low-cost manufactured goods from Asia. Coal mining quickly collapsed and practically disappeared by the 21st century.^[61] Railways were decrepit, more textile mills closed than opened, steel employment fell sharply, and the car-making industry suffered. Popular responses varied a great deal;^[62] Tim Strangleman et al. found a range of responses from the affected workers: Some nostalgically invoked a glorious industrial past or the bygone empire to cope with their new-found personal economic insecurity, many turned to exclusionary Englishness, and others looked to the European Union for help.^[63] By the 2010s, grievances had accumulated enough to have a political impact. The United Kingdom Independence Party (UKIP), based in working-class towns, gained an increasing share of the vote while warning against the dangers of immigration. Political reverberations came to a head in the popular vote in favour of Brexit in 2016.^[64]

1973 to 1979

Following the 1973 oil crisis, the 1973–74 stock market crash, and the secondary banking crisis of 1973–75, the British economy fell into the 1973–75 recession and the government of Edward Heath was ousted by the Labour Party under Harold Wilson, which had previously governed from 1964 to 1970. Wilson formed a minority government in March 1974 after the general election on 28 February ended in a hung parliament. Wilson secured a three-seat majority in a second election in October that year.

The UK recorded weaker growth than many other European nations in the 1970s; even after the recession, the economy was blighted by rising unemployment and double-digit inflation, which exceeded 20% more than once and was rarely below 10% after 1973.

In 1976, the UK was forced to apply for a loan of £2.3 billion from the International Monetary Fund. Denis Healey, then Chancellor of the Exchequer, was required to implement public spending cuts and other economic reforms in order to secure the loan, and for a while the British economy improved, with growth of 4.3 per cent in early 1979. However, following the Winter of Discontent, when the UK was hit by numerous public sector strikes, the government of James Callaghan lost a vote of no confidence in March 1979. This triggered the 1979 general election which resulted in Margaret Thatcher's Conservative Party forming a new government.

1979 to 1997

A new period of neo-liberal economics began in 1979 with the election of Margaret Thatcher who won the general election on 3 May that year to return the Conservative Party to government after five years of Labour government. During the 1980s, most state-owned industries and utilities were privatised, taxes cut, union reforms passed and markets deregulated. GDP fell by 5.9% initially,^[65] but growth subsequently returned and rose to 5% at its peak in 1988, one of the highest rates of any country in Europe.^[66][67]

Thatcher's modernisation of the economy was far from trouble-free; her battle with inflation, which in 1980 had risen to 21.9%, resulted in a substantial increase in unemployment from 5.3% in 1979 to over 10.4% by the start of 1982, peaking at nearly 11.9% in 1984 – a level not seen in Britain since the Great Depression.^[68] The rise in unemployment coincided with the early 1980s global recession, after which UK GDP did not reach its pre-recession rate until 1983. In spite of this, Thatcher was re-elected in June 1983 with a landslide majority. Inflation had fallen to 3.7%, while interest rates were relatively high at 9.56%.^[68]

The increase in unemployment was largely due to the government's economic policy which resulted in the closure of outdated factories and coal pits. Manufacturing in England and Wales declined from around 38% of jobs in 1961 to around 22% in 1981.^[69] This process continued for most of the 1980s, with newer industries and the service sector enjoying significant growth. Many jobs were also lost as manufacturing became more efficient and fewer people were required to work in the sector. Unemployment had fallen below 3 million by the time of Thatcher's third successive election victory in June 1987 and by the end of 1989 it was down to 1.6 million.^[70]

Britain's economy slid into another global recession in late 1990, and this caused the economy to shrink by a total of 6% from peak to trough,^[71] and unemployment to increase from around 6.9% in the spring of 1990 to nearly 10.7% by the end of 1993. However, inflation dropped from 10.9% in 1990 to 1.3% three years later.^[68] The subsequent economic recovery was extremely strong, and unlike after the early 1980s recession, the recovery saw a rapid and substantial fall in unemployment, which was down to 7.2% by 1997,^[68] although the popularity of the Conservative government had failed to improve with the economic upturn. The government won a fourth successive election in 1992 under John Major, who had succeeded Thatcher in November 1990, but soon afterwards came Black Wednesday, which damaged the Conservative government's reputation for economic competence, and from that stage onwards, the Labour Party was ascendant in the opinion polls, particularly in the immediate aftermath of Tony Blair's election as party leader in July 1994 following the sudden death of his predecessor John Smith.

Despite two recessions, wages grew consistently by around 2% per year in real terms from 1980 until 1997, and would continue to grow until 2008.^[72]

1997 to 2008

In May 1997, Labour, led by Tony Blair, won the general election by a landslide after 18 years of Conservative government,^[73] and inherited a strong economy with low inflation,^[74] falling unemployment,^[75] and a current account surplus.^[76] Four days after the election, Gordon Brown, the new Chancellor of the Exchequer, gave the Bank of England the freedom to control monetary policy, which until then had been directed by the government.^[77]

During Blair's 10 years in office there were 40 successive quarters of economic growth, lasting until the second quarter of 2008, helped by Labour's decision to keep taxes relatively low and abandon traditional Labour policies, including public ownership of industries and utilities. GDP growth, which had briefly reached 4% per year in the early 1990s, gently declining thereafter, was relatively anaemic compared to prior decades, such as the 6.5% per year peak in the early 1970s, although growth was smoother and more consistent.^[67] Annual growth rates averaged 2.68% between 1992 and 2007,^[66] with the finance sector accounting for a greater part than previously. The period saw one of the highest economic growth rates of major developed economies and certainly the strongest of any European nation.^[78]

This extended period of growth ended in Q2 of 2008 when the United Kingdom suddenly entered a recession – its first for nearly two decades – brought about by the global financial crisis. The UK was particularly vulnerable to the crisis because its financial sector was the most highly leveraged of any major economy.^[79] Beginning with the collapse of Northern Rock, which was taken into public ownership in February 2008, other banks had to be partly nationalised. The Royal Bank of Scotland Group, at its peak the fifth-largest bank in the world by market capitalisation, was effectively nationalised in October 2008. By mid-2009, HM Treasury had a 70.33% controlling shareholding in RBS, and a 43% shareholding, through UK Financial Investments Limited, in Lloyds Banking Group. The Great Recession, as it came to be known, saw unemployment rise from just over 1.6 million in January 2008 to nearly 2.5 million by October 2009.^[80][81]

The UK had been one of the strongest economies in terms of inflation, interest rates and unemployment, all of which remained lower until the 2008–09 recession. In August 2008 the IMF warned that the country's outlook had worsened due to a twin shock: financial turmoil and rising commodity prices.^[82] Both developments harmed the UK more than most developed countries, as it obtained revenue from exporting financial services while running deficits in goods and commodities, including food. In 2007, the UK had the world's third largest current account deficit, due mainly to a large deficit in manufactured goods. In May 2008, the IMF advised the UK government to broaden the scope of fiscal policy to promote external balance.^[83] The UK's output per hour worked was on a par with the average for the "old" EU-15 countries.^[84]

2009 to 2015

In March 2009, the Bank of England cut interest rates to a historic low of 0.5% and began quantitative easing to boost lending and shore up the economy.^[85] The UK exited the Great Recession in Q4 of 2009 having experienced six consecutive quarters of negative growth, shrinking by 6.03% from peak to trough, making it the longest recession since records began and the deepest recession since World War II.^[71][86] Support for Labour slumped during the recession, and the general election of 2010 resulted in a coalition government being formed by the Conservatives and the Liberal Democrats, which made deep spending cuts in order to ease the budget deficit.

In 2011, total debt (national, household, financial, and business debts) stood at 497% of GDP in the UK, compared to 492% in Japan, 341% in France, 289% in the United States, 284% in Germany, and 274% in Canada.^[87] As the world's most indebted country, spending and investment in the UK were held back after the recession, creating economic malaise. However, it was recognised that government borrowing, which rose from 52% to 76% of GDP, had helped to avoid a 1930s-style depression.^[88]

Between 2005 and 2011, the UK dropped from 5th place to 12th in terms of household income globally. It was partially attributed to the devaluation of sterling. However, inflation was steady, the labour market had been more resilient compared to other recessions, and wealth and household spending were strong relative to other OECD countries.^[89]

Within three years of the general election, government cuts had led to public sector job losses well into six figures, but the private sector enjoyed strong jobs growth, and by October 2013 unemployment was below 2.5 million for the first time in four years. By the end of 2014, UK growth had become the fastest in the Group of Seven (G7) and in Europe,^[90] and employment was at its highest since records began.^[91] In stark contrast to the early 2000s, the UK had one of the least productive workforces of the major economies in 2014, following seven years of stagnation in productivity. Output per hour worked was 18% below the average for the rest of the G7.^[92] Of the "old" EU-15 countries, only Portugal, Italy and Greece (three of the so-called PIGS) had lower output per hour worked than the UK.^[93]

Income inequality among the EU-15 was highest in the UK, and wages had fallen by 10% in real terms since 2008, worse than any OECD country apart from Greece. Real wages grew in Germany by 14%, in France by 11%, and across the OECD by 6.7%.^[94] The Office for Budget Responsibility forecast in 2014 that individuals would have to borrow £360bn (excluding mortgages) over the next five years if the economy was to grow at the rate expected by the Government.^[95] Unsecured household debt rose by 24% between 2011 and 2015, adding to widespread questions over the sustainability of the economic recovery.^{[96][97][98][99]} The Bank of England insisted there was no cause for alarm,^[100] despite having said two years earlier that the recovery was "neither balanced nor sustainable".^[101]

Between 2009 and 2015,^[102] the UK's current account deficit rose from 3% to a record high of 5.2% of GDP (£96.2bn),^[103] the highest by GDP in the developed world.^[104] In the fourth quarter of 2015, the deficit exceeded 7% of GDP, a level not witnessed during peacetime since records began in 1772.^[105] The UK relied on foreign investors to plug the shortfall in its balance of payments.^[106]

2016 to present day

Following the UK's decision in June 2016 to leave the European Union, commonly known as Brexit, the pound sterling fell to a 31-year low against the United States dollar,^[107] and consumer confidence fell sharply,^[108] as did the Purchasing Managers' Index.^[109] The Bank of England responded by cutting interest rates to a new historic low of 0.25%. The Bank also bought £60bn of UK government bonds and £10bn of corporate bonds, taking the amount of quantitative easing since the Great Recession to £435bn.^[110]

In the third quarter of 2016 wages were 7% below the level they had been at prior to the Great Recession in real terms.^[111] The previous 10 years had been the worst decade for real wage growth since the 1860s. Mark Carney, Governor of the Bank of England, described it as a lost decade. Productivity was 16% below the long-term trend,^[112] and the recovery was still very unbalanced,^[113] with consumption accounting for 100% of growth in 2016.^[114] Altogether, households ran an unprecedented deficit of 3% of GDP.^[105]

Government spending and economic management

Government involvement in the economy is primarily exercised by HM Treasury, headed by the Chancellor of the Exchequer. In recent years, the UK economy has been managed in accordance with principles of market liberalisation and low taxation and regulation. Since 1997, the Bank of England's Monetary Policy Committee, headed by the Governor of the Bank of England, has been responsible for setting interest rates at the level necessary to achieve the overall inflation target for the economy that is set by the Chancellor each year.^[115] The Scottish Government, subject to the approval of the Scottish Parliament, has the power to vary the basic rate of income tax payable in Scotland by plus or minus 3 pence in the pound, though this power has not yet been exercised.

In the 20-year period from 1986/87 to 2006/07 government spending in the UK averaged around 40% of GDP.^[116] In July 2007, the UK had government debt at 35.5% of GDP.^[117] As a result of the 2007–2010 financial crisis and the late-2000s global recession, government spending increased to a historically high level of 48% of GDP in 2009–10, partly as a result of the cost of a series of bank bailouts.^[116][117] In terms of net government debt as a percentage of GDP, at the end of June 2014 public sector net debt excluding financial sector interventions was £1304.6 billion, equivalent to 77.3% of GDP.^[118] For the financial year of 2013–2014 public sector net borrowing was £93.7 billion.^[118] This was £13.0 billion higher than in the financial year of 2012–2013.

Taxation

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, fees and charges such as those from on-street parking. Central government revenues are mainly from income tax, national insurance contributions, value added tax, corporation tax and fuel duty.

Sectors

Agriculture

Agriculture in the UK is intensive, highly mechanised, and efficient by European standards, producing about 60% of food needs,^[119] with less than 1.6% of the labour force (535,000 workers).^[119] It contributes around 0.6% of British national value added.^[119] Around two-thirds of the production is devoted to livestock, one-third to arable crops.^[119] Agriculture is subsidised by the European Union's Common Agricultural Policy.

The UK retains a significant, though reduced, fishing industry. Its fleets, based in towns such as Kingston upon Hull, Grimsby, Fleetwood, Newlyn, Great Yarmouth, Peterhead, Fraserburgh, and Lowestoft, bring home fish ranging from sole to herring.

The Blue Book 2013 reports that "Agriculture" added gross value of £9,438 million to the UK economy in 2011.^[120]

Construction

The construction industry of the United Kingdom contributed gross value of £86 billion to the UK economy in 2011.^[120] The industry employed around 2.2 million people in the fourth quarter of 2009.^[121] There were around 194,000 construction firms in the United Kingdom in 2009, of which around 75,400 employed just one person and 62 employed over 1,200 people.^[121] In 2009 the construction industry in the UK received total orders of around £18.7 billion from the private sector and £15.1 billion from the public sector.^[121]

The largest construction project in the UK is Crossrail. Due to open in 2018, it will be a new railway line running east to west through London and into the surrounding countryside with a branch to Heathrow Airport.^[122] The main feature of the project is construction of 42 km (26 mi) of new tunnels connecting stations in central London. It is also Europe's biggest construction project with a £15 billion projected cost.^[123][124]

Prospective construction projects include the High Speed 2 line between London and the West Midlands and Crossrail 2.

Production industries

Electricity, gas and water supply

The Blue Book 2013 reports that this sector added gross value of £33,289 million to the UK economy in 2011.^[120] The United Kingdom is expected to launch the building of new nuclear reactors to replace existing generators and to boost UK's energy reserves.^[125]

Manufacturing

In the 1970s, manufacturing accounted for 25 percent of the economy. Total employment in manufacturing fell from 7.1 million in 1979 to 4.5 million in 1992 and only 2.7 million in 2016, when it accounted for 10% of the economy.^{[126][127][128]}

In 2011 the UK manufacturing sector generated approximately £140,539 million in gross value added and employed around 2.6 million people.^[120][129] Of the approximately £16 billion invested in R&D by UK businesses in 2008, approximately £12 billion was by manufacturing businesses.^[129] In 2008, the UK was the sixth-largest manufacturer in the world measured by value of output.^[130]

In 2008 around 180,000 people in the UK were directly employed in the UK automotive manufacturing sector.^[131] In that year the sector had a turnover of £52.5 billion, generated £26.6 billion of exports and produced around 1.45 million passenger vehicles and 203,000 commercial vehicles.^[131] The UK is a major centre for engine manufacturing, and in 2008 around 3.16 million engines were produced in the country.^[131]

The aerospace industry of the UK is the second- or third-largest aerospace industry in the world, depending upon the method of measurement.^[132][133] The industry employs around 113,000 people directly and around 276,000 indirectly and has an annual turnover of around £20 billion.^[134][135] British companies with a major presence in the industry include BAE Systems (the world's second-largest defence contractor)^[136] and Rolls-Royce (the world's second-largest aircraft engine maker).^[137] Foreign aerospace companies active in the UK include EADS and its Airbus subsidiary, which employs over 13,000 people in the UK.^[138]

The pharmaceutical industry employs around 67,000 people in the UK and in 2007 contributed £8.4 billion to the UK's GDP and invested a total of £3.9 billion in research and development.^[139][140] In 2007 exports of pharmaceutical products from the UK totalled £14.6 billion, creating a trade surplus in pharmaceutical products of £4.3 billion.^[141] The UK is home to GlaxoSmithKline and AstraZeneca, respectively the world's third- and seventh-largest pharmaceutical companies.^[142][143]

Mining, quarrying and hydrocarbons

The Blue Book 2013 reports that this sector added gross value of £31,380 million to the UK economy in 2011.^[120] In 2007 the UK had a total energy output of 9.5 quadrillion Btus (10 exajoules), of which the composition was oil (38%), natural gas (36%), coal (13%), nuclear (11%) and other renewables (2%).^[144] In 2009, the UK produced 1.5 million barrels per day (bbl/d) of oil and consumed 1.7 million bbl/d.^[145] Production is now in decline and the UK has been a net importer of oil since 2005.^[145] As of 2010 the UK has around 3.1 billion barrels of proven crude oil reserves, the largest of any EU member state.^[145]

In 2009 the UK was the 13th largest producer of natural gas in the world and the largest producer in the EU.^[146] Production is now in decline and the UK has been a net importer of natural gas since 2004.^[146] In 2009 the UK produced 19.7 million tons of coal and consumed 60.2 million tons.^[144] In 2005 it had proven recoverable coal reserves of 171 million tons.^[144] It has been estimated that identified onshore areas have the potential to produce between 7 billion tonnes and 16 billion tonnes of coal through underground coal gasification (UCG).^[147] Based on current UK coal consumption, these volumes represent reserves that could last the UK between 200 and 400 years.^[148]

The UK is home to a number of large energy companies, including two of the six oil and gas "supermajors" – BP and Royal Dutch Shell.^[149][150]

The UK is also rich in a number of natural resources including coal, tin, limestone, iron ore, salt, clay, chalk, gypsum, lead and silica.

Service industries

The service sector is the dominant sector of the UK economy, and contributes around 77.8% of GDP as of Q1 2014.^[151]

Creative industries

The creative industries accounted for 7% of gross value added (GVA) in 2005 and grew at an average of 6% per annum between 1997 and 2005.^[152] Key areas include London and the North West of England, which are the two largest creative industry clusters in Europe.^[153] According to the British Fashion Council, the fashion industry’s contribution to the UK economy in 2014 is ₤26 billion, up from ₤21 billion pounds in 2009.^[154] The UK is home to the world's largest advertising company, WPP.

Education, health and social work

According to The Blue Book 2013 the education sector added gross value of £84,556 million in 2011 whilst human health and social work activities added £104,026 million in 2011.^[120]

In the UK the majority of the healthcare sector consists of the state funded and operated National Health Service (NHS), which accounts for over 80% of all healthcare spending in the UK and has a workforce of around 1.7 million, making it the largest employer in Europe, and putting it amongst the largest employers in the world.^{[155][156][157]} The NHS operates independently in each of the four constituent countries of the UK. The NHS in England is by far the largest of the four parts and had a turnover of £92.5 billion in 2008.^[158]

In 2007/08 higher education institutions in the UK had a total income of £23 billion and employed a total of 169,995 staff.^[159] In 2007/08 there were 2,306,000 higher education students in the UK (1,922,180 in England, 210,180 in Scotland, 125,540 in Wales and 48,200 in Northern Ireland).^[159]

Financial and business services

The UK financial services industry added gross value of £116,363 million to the UK economy in 2011.^[120] The UK's exports of financial and business services make a significant positive contribution towards the country's balance of payments.

London is a major centre for international business and commerce and is one of the three "command centres" of the global economy (alongside New York City and Tokyo).^[31][160] There are over 500 banks with offices in London, and it is the leading international centre for banking, insurance, Eurobonds, foreign exchange trading and energy futures. London's financial services industry is primarily based in the City of London and Canary Wharf. The City houses the London Stock Exchange, the London International Financial Futures and Options Exchange, the London Metal Exchange, Lloyds of London, and the Bank of England. Canary Wharf began development in the 1980s and is now home to major financial institutions such as Barclays Bank, Citigroup and HSBC, as well as the UK Financial Services Authority.^[161][162] London is also a major centre for other business and professional services, and four of the six largest law firms in the world are headquartered there.^[163]

Several other major UK cities have large financial sectors and related services. Edinburgh has one of the largest financial centres in Europe^[164] and is home to the headquarters of the Royal Bank of Scotland Group and Standard Life. Leeds is now the UK's largest centre for business and financial services outside London,^{[165][166][167]} and the largest centre for legal services in the UK after London.^{[168][169][170]}

According to a series of research papers and reports published in the mid-2010s, Britain’s financial firms provide sophisticated methods to launder billions of pounds annually, including money from the proceeds of corruption around the world as well as the world’s drug trade, thus making the City a global hub for illicit finance.^{[171][172][173][174]} According to a Deutsche Bank study published in March 2015, Britain was attracting circa one billion pounds of capital inflows a month not recorded by official statistics, up to 40 percent probably originating from Russia, which implies misreporting by financial institutions, sophisticated tax avoidance, and the UK's "safe-haven" reputation.^[175]

Hotels and restaurants

The Blue Book 2013 reports that this industry added gross value of £36,554 million to the UK economy in 2011.^[120] Intercontinental Hotels Group (IHG), headquartered in Denham, Buckinghamshire, is currently the world's largest hotelier, owning and operating hotel brands such as Intercontinental, Holiday Inn and Crowne Plaza. The international arm of Hilton Hotels, the world's fifth largest hotelier, used to be owned by Ladbrokes Plc, and was headquartered in Watford, Hertfordshire from 1987 to 2005. It was sold to Hilton Hotels Group of the USA in December 2005.

Informal

A study in 2014 found that prostitution and associated services added over £5 billion to the economy each year.^[176]

Public administration and defence

The Blue Book 2013 reports that this sector added gross value of £70,400 million to the UK economy in 2011.^[120]

Real estate and renting activities

The real estate and renting activities sector includes the letting of dwellings and other related business support activities. The Blue Book 2013 reports that real estate industry added gross value of £143,641 million in 2011.^[120] Notable real estate companies in the United Kingdom include British Land, Land Securities, and The Peel Group.

The UK property market boomed for the seven years up to 2008, and in some areas property trebled in value over that period. The increase in property prices had a number of causes: low interest rates, credit growth, economic growth, rapid growth in buy-to-let property investment, foreign property investment in London and planning restrictions on the supply of new housing. In England and Wales between 1997 and 2016, average house prices increased by 259%, while earnings increased by 68%. An average home cost 3.6 times annual earnings in 1997 compared to 7.6 in 2016.^[178]

Rent has nearly doubled as a share of GDP since 1985, and is now larger than the manufacturing sector. In 2014, rent and imputed rent – an estimate of how much home-owners would pay if they rented their home – accounted for 12.3% of GDP.^[179]

Tourism

Tourism is very important to the British economy. With over 32.6 million tourists arriving in 2014, the United Kingdom is ranked as the eighth major tourist destination in the world.^[180] London is the second most visited city in the world with 17.4 million visitors in 2014, behind first-placed Hong Kong (27.8 million visitors).^[181]

Transport, storage and communication

The transport and storage industry added gross value of £59,179 million to the UK economy in 2011 and the telecommunication industry added a gross value of £25,098 million in the same year.^[120]

The UK has a radial road network of 46,904 kilometres (29,145 mi) of main roads, with a motorway network of 3,497 kilometres (2,173 mi). There are a further 213,750 kilometres (132,818 mi) of paved roads. The railway infrastructure company Network Rail owns and operates the majority of the 16,116 km (10,014 mi) railway lines in Great Britain and a further 303 route km (189 route mi) in Northern Ireland is owned and operated by Northern Ireland Railways. Since privatisation, around 20 Train Operating Companies operate the passenger trains. Urban rail networks are well developed in major cities including Glasgow, Liverpool and London. The government is to spend £30 billion on a new high-speed railway line, HS2, to be operational by 2026.^[183] Crossrail, under construction in London, Is Europe's largest construction project with a £15 billion projected cost.^[184][185]

The Highways Agency is the executive agency responsible for trunk roads and motorways in England apart from the privately owned and operated M6 Toll.^[186] The Department for Transport states that traffic congestion is one of the most serious transport problems and that it could cost England an extra £22 billion in wasted time by 2025 if left unchecked.^[187] According to the government-sponsored Eddington report of 2006, congestion is in danger of harming the economy, unless tackled by road pricing and expansion of the transport network.^[188][189]

In the year from October 2009 to September 2010 UK airports handled a total of 211.4 million passengers.^[190] In that period the three largest airports were London Heathrow Airport (65.6 million passengers), Gatwick Airport (31.5 million passengers) and London Stansted Airport (18.9 million passengers).^[190] London Heathrow Airport, located 24 kilometres (15 mi) west of the capital, has the most international passenger traffic of any airport in the world.^[191][192] and is the hub for the UK flag carrier British Airways, as well as BMI and Virgin Atlantic.^[193] London's six commercial airports form the world's largest city airport system measured by passenger traffic.^[194]

Wholesale and retail trade

This sector includes the motor trade, auto repairs, personal and household goods industries. The Blue Book 2013 reports that this sector added gross value of £151,785 million to the UK economy in 2011.^[120]

As of 2016, high-street retail spending accounted for about 33% of consumer spending and 20% of GDP. Because 75% of goods bought in the United Kingdom are made overseas, the sector only accounts for 5.7% of gross value added to the British economy.^[195]

The UK grocery market is dominated by four companies: Asda (owned by Wal-Mart Stores), Morrisons, Sainsbury's and Tesco.^[196]

London is a major retail centre and in 2010 had the highest non-food retail sales of any city in the world, with a total spend of around £64.2 billion.^[197] The UK-based Tesco is the third-largest retailer in the world measured by revenues (after Wal-Mart Stores and Carrefour) and as of 2011 was the leader in the UK market with around a 30% share.^[198]

Currency

London is the world capital for foreign exchange trading, with a global market share of nearly 41% in 2013 of the daily $5.3 trillion global turnover. The highest daily volume, counted in trillions of dollars US, is reached when New York enters the trade. The currency of the UK is the pound sterling, represented by the symbol £. The Bank of England is the central bank, responsible for issuing currency. Banks in Scotland and Northern Ireland retain the right to issue their own notes, subject to retaining enough Bank of England notes in reserve to cover the issue. The pound sterling is also used as a reserve currency by other governments and institutions, and is the third-largest after the US dollar and the euro.^[55]

The UK chose not to join the euro at the currency's launch. The government of former Prime Minister Tony Blair had pledged to hold a public referendum for deciding membership should "five economic tests" be met. Until relatively recently there was debate over whether or not the UK should abolish its currency Pound Sterling and adopt the euro. In 2007 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. He ruled out membership for the foreseeable future, saying that the decision not to join had been right for the UK and for Europe.^[199] 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.^[200] In 2005, more than half (55%) of the UK were against adopting the currency, while 30% were in favour.^[201] The issue of joining the euro has become a non-issue since the referendum decision to withdraw from the European Union.

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.

1 GBP in USD since 1971

Source: OANDA.COM Historical Currency Converter

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.

Economy by region

The strength of the UK economy varies from country to country and from region to region. Excluding the effects of North Sea oil and gas (which is classified in official statistics as extra-regio), England has the highest gross value added (GVA) and Wales the lowest of the UK's constituent countries.

Rank	Place	GDP per capita, 2015[204]
1	England	£26,160/ $40,000
2	Scotland	£23,685/ $36,200
3	Northern Ireland	£18,584/ $28,400
4	Wales	£18,002/ $27,500

Within England, GVA per capita is highest in London. The following table shows the GVA per capita of the nine statistical regions of England.

Rank	Place	GVA per capita, 2013[204]
1	Greater London	£40,215
2	South East England	£25,843
3	East of England	£21,897
4	South West England	£21,163
5	North West England	£19,937
6	West Midlands	£19,428
7	East Midlands	£19,317
8	Yorkshire and the Humber	£19,053
9	North East England	£17,381

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.^[205] Edinburgh is also one of the largest financial centres in Europe.^[206]

At the other end of the scale, Cornwall has the lowest GVA per head of any county or unitary authority in England,^[207] and it has received EU Convergence funding (formerly Objective One funding) since 2000.^[208]

Trade

UK Trade bulletin June 2017

Between Quarter 1 (Jan to Mar) 2017 and Quarter 2 (Apr to June) 2017, the total trade deficit (goods and services) widened by £0.1 billion to £8.9 billion as increases in imports were closely matched by increases in exports.

The UK’s total trade deficit (goods and services) widened by £2.0 billion between May and June 2017 to £4.6 billion, due to increases in imports of both goods and services; erratic commodities had little impact within the total trade balance on the month.

Since the last UK trade release, the total trade (goods and services) deficits for April and May 2017 have been revised down by £0.3 billion and £0.6 billion respectively; this is due to an upward revision to exports of goods in April 2017 and downward revision to the imports of goods in May.

Comparing Quarter 2 2017 with Quarter 2 2016, UK goods export and import prices rose by 8.2% and 7.8% respectively and sterling depreciated 8.7% over the same period.

Despite higher trade prices and weaker sterling, there were similar increases in export and import volumes of goods, by 5.0% and 4.8% respectively, in Quarter 2 2017 compared with the same period a year earlier.

Foreign direct investment

In 2013 the UK was the leading country in Europe for inward foreign direct investment (FDI) with $26.51bn. This gave it a 19.31% market share in Europe. In contrast, the UK was second in Europe for outward FDI, with $42.59bn, giving a 17.24% share of the European market.^[209]

European Union membership

As a member of the European Union, the UK has negotiated and agreed to numerous EU-wide trade and market policies. According to the 2014 report within the "Balance of EU competences" review, the majority of the EU trade policies have been beneficial for the UK, despite the proportion of the country's exports going to the EU falling from 54 percent to 47 percent over the past decade. The total value of exports however has increased in the same period from £130 billion (€160 billion) to £240 billion (€275 billion).^[210][211]

In June 2016 the UK voted to leave the EU in a national referendum on its membership of the EU. The long-term consequences of this vote are unclear at present.^[212]

Poverty

The United Kingdom is a developed country with social welfare infrastructure, thus discussions surrounding poverty tend to be of relative poverty rather than absolute poverty. According to the OECD, the UK is in the lower half of developed country rankings for poverty rates, doing better than Italy and the US but less well than France, Austria, Hungary, Slovakia and the Nordic countries.^[213] Eurostat figures show that the numbers of Britons at risk of poverty has fallen to 15.9% in 2014, down from 17.1% in 2010 and 19% in 2005 (after social transfers were taken into account).^[214]

The poverty line in the UK is commonly defined as being 60% of the median household income. In 2007–2008, this was calculated to be £115 per week for single adults with no dependent children; £199 per week for couples with no dependent children; £195 per week for single adults with two dependent children under 14; and £279 per week for couples with two dependent children under 14. In 2007–2008, 13.5 million people, or 22% of the population, lived below this line. This is a higher level of relative poverty than all but four other EU members.^[215] In the same year, 4.0 million children, 31% of the total, lived in households below the poverty line, after housing costs were taken into account. This is a decrease of 400,000 children since 1998–1999.^[216]

References

External links

• Economy at the Office for National Statistics
• UK economy at a glance at the Financial Times
• UK profile at the CIA World Factbook
• UK profile at The World Bank