Economy of Great Britain
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Presently UK’s economy encompasses those of its home nations – England, Scotland, Wales and Northern Ireland. The Isle of Man and the Channel Isles are also considered to be part of the British Isles but have offshore banking statuses. As a member of the EU, the UK is part of a single market that ensures the free movement of people, goods, services, and capital within member states. Nevertheless, the UK still maintains its own economy and has chosen to continue using the Pound Sterling as its national currency rather than converting to the Euro. By the 1880s, The British economy was dominant in the world, producing one third of the world’s manufactured goods, half its coal and iron, and half its cotton. But by 1900, the UK has been overtaken by both the United States and Germany. 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the dismantlement of the British Empire also weakened the UK economy in global terms, and by that time Britain had been superseded by the United States as the chief player in the global economy. From 1945 until the present, the story of the UK economy is usually thought of as one of decline. Facts showing the uk economy’s relative decline:
* Britain is a lot more wealthier and more productive when it was in 1945; * However, other countries have improved more rapidly, and the UK slide from being the 2nd largest economies to being the 6th. Today, the UK economy faces another struggle to recover from the 2008 financial crisis. Presently, the recovery effort has been sluggish. Although global economic prospects appear to be improving, economic forecasts for the UK have been fairly negative. In April 2011, The IMF slashed its 2011 growth forecast for UK’s economy to 1.75 percent, its third downgrade in a year. A report by the Organisation for Economic Co-operation and Development (OECD) also ranked UK as the slowest growing economy in the G7, with the exception of Japan.
* The British economy went through in particular bad period in the 1970s. * Following the severe shock of the 1973 oil crisis and the 1973-1974 stock market crash, the British economy went into recession in 1974, with GDP falling by 1.1%, recording weaker growth than other European nations in the 1970s overall. * In 1979, the British people voted in the Conservative Party under Margaret Thatcher, with the promise of a radical program of reform. State of the UK economy
Growth – the economy contracted by an estimated 0.7% in the second quarter of 2012 (on the first quarter), a disappointing result but not entirely unexpected given the impact of unfolding events in the eurozone on business/investor confidence (the greatest risk to the UK economy). The IMF predicts the UK will be the second fastest growing G7 economy by 2015. Unemployment rate – remains relatively high, at 8.1%, but fell slightly in the last quarter and is below US and eurozone (average) levels. Private sector has created over 800,000 jobs since 2010, more than in France, Italy, or Spain. Currently, 1.4 percent of the labour force are employed in agriculture, 18.2 percent in industries and 80.4 percent in services. However, agriculture may soon face a labour crisis due to an aging labour force and a general lack of interest for agricultural jobs. Inflation rate – Inflation has been fuelled by rising commodity prices and the impact of sterling’s depreciation, but those effects are dying away. Inflation fell to 2.4% in June, less than half its September 2011 peak of 5.2%. Falling inflation is good news for household purchasing power and UK growth. Government debt – is high, at 64% of GDP. But the Government’s fiscal consolidation plans envisage public debt as a percentage of GDP falling from the end of 2015 onwards. Government bond yields are currently around record lows, a sign of the UK’s ‘safe haven’ status. Unlike several other major economies, the UK has maintained its AAA credit rating. This is largely because the UK has: a flexible exchange rate; an independent central bank; a credible fiscal deficit reduction plan.
Trade – from 2010 to 2011 the UK’s (goods and services) trade deficit shrank by around 25%, a sign of progress in ‘rebalancing’ the economy more towards exports. In the first quarter of this year the UK exported more cars than it imported, for the first time since 1976. For the first time in over a decade, the UK is exporting more to countries outside the EU than to those inside it. Even though the UK is not in the eurozone, they have strong economic links with their close neighbour. 42% of UK exports go to the Eurozone, and almost half of all foreign direct investment in the UK comes from the eurozone. Monetary policy/lending schemes – the Bank of England’s policy interest rate is at a record low, 0.5%. HMT and the Bank launched the ‘National Loan Guarantee System’ in March this year, which reduces the cost of borrowing from banks for smaller businesses. Similarl y, HMT and the Bank launched the ‘Funding for Lending Scheme’ in July, which enables banks to borrow cheaply from the central bank so they can lend more, and at lower interest rates, to businesses and consumers. UK’s Industry Sectors
The UK’s GDP makeup is comprised of agriculture (1.4 percent), Industries (22.1 percent) and services (77.1 percent). Despite only contributing 1.4 percent of UK’s GDP in 2010, Agriculture is still considered an important part of the UK’s economy and society as it produces 60 percent of the UK’s food needs. Agriculture in the UK is highly mechanised and efficient, combining advanced technology with modern farming techniques. Agriculture in the UK is also highly subsidised, both by the UK government and the EU’s Common Agricultural Policy. Industries and manufacturing on the other hand is extremely important if the UK wishes to reduce its trade deficit. The UK is the sixth-largest manufacturer of goods in the world according to the value of its outputs. Within manufacturing, the production of automotive or aerospace equipment is a major contributor to UK industries. UK’s aerospace industry is the second largest in the world with companies such as BAE Systems (the world’s second largest defence contractor), and Rolls-Royce (the world’s second largest aircraft engine maker) boasting annual turnovers of around £20 billion.
However, despite the historical importance of agriculture and industries, services remain the dominant component of UK’s economy. Finance and banking are by far the UK’s most important services with London being one of the three major economic “command centres” alongside New York City and Tokyo. Important financial institutions located within London include the London Stock Exchange, the London International Financial Futures and Options Exchange, the London Metal Exchange, Lloyds of London, and the Bank of England. Tourism is another extremely important service in the UK. With more than 28 million tourist arrivals in 2009, the tourism industry is worth nearly £80 million annually. According to tourism agency Visit London, the 2012 London Olympics will be a boost to the UK’s economy – providing an additional US$2.457 billion to the economy over ten years.