Britain is the world's fifth largest economy.
For a long time, heavy industry dominated, where
shipbuilding and coal mining played a major role. Since
the 1970s, the importance of the manufacturing industry
to the economy has decreased dramatically. Nowadays, the
service industries, of which the financial sector is an
important part, answer about four-fifths of the gross
domestic product (GDP).
The economic conditions differ between different
parts of the country. The economy is strongest in
south-east England. London is one of the world's
foremost financial centers and the financial sector
accounts for about one tenth of GDP. In addition to the
London Stock Exchange, there are a number of
international banks and financial institutions, as well
as insurance companies for shipping companies and
airlines. The IT sector is also strong, as is the
pharmaceutical industry. At the same time, the
traditional export industry, including car and steel
manufacturing, has encountered difficulties elsewhere.
Many industries have been closed down in northern
England, Scotland and Wales.
Major imports by United Kingdom, covering a full list of top products imported by the country and trade value for each product category.
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But the service sector consists not only of the
financial sector, where many employees have high
salaries, but also of industries that depend on low-paid
staff, such as retail, call centers and restaurants.
Britain's decision to leave the EU is expected to
lead to difficult trials for the UK economy. The
turbulence that has prevailed in the Brexit process, and
the conditions that will apply after leaving, has
affected the economic development.
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From growth to deep crisis
When Labor came to power in 1997, a relatively tight
economic policy was initially pursued and the government
was able to show surplus in the state budget for several
years in a row. After that it became more generous and
large investments were made in school and care. At the
same time, demand was high in the domestic market. Low
interest rates helped drive up house prices, especially
in the larger cities, and many Brits borrowed money for
home purchases and private consumption.
The budget deficits grew and the state began to take
large loans. From 2005, several taxes were raised to
create a better balance in central government finances.
But a few years later the problems accumulated, growth
stopped and the pound fell in value. At the same time,
there were great concerns about the world's financial
markets and several British banks ended up in
difficulties. First out was Northern Rock, which had
problems in 2007.
In order to save the British banking system, the
government announced in 2008 a crisis package of £ 50
billion, while promising to lend the equivalent of £ 200
billion to the banks. The rescue package meant that
several banks were completely or partially nationalized.
In order to reduce the consequences of the crisis, the
government promised, among other things, to advance
planned large public investments that would be financed
The bourgeois coalition government that took office
in 2010 chose another strategy: to save itself from the
crisis. VAT was increased, a two-year pay cut was
introduced in the public sector, almost all the
ministries were forced to save large sums and corporate
taxes were lowered. The then Finance Minister George
Osborne promised to keep the state finances in balance
by 2015. But despite decent growth from 2013 and falling
unemployment, the British state had to take large loans
to get the budget together. One reason for this was that
tax revenue was lower than expected, which was partly
because so many Britons earned so little that they did
not have to pay income tax. Another reason was that
exports fell due to the euro crisis and reduced demand
for British goods in the US.
The conservative government that has ruled the
country since 2015 has pursued a tough austerity policy,
especially in the welfare system (see Social
conditions), which has led to a reduction in the
deficits in the state budget. However, central
government debt has continued to increase in relation to
Brexit beats the economy
Months after the referendum on the EU, the economy
fared better than expected, except that the value of the
pound fell sharply. However, most analysts predicted
that leaving the EU would have a negative impact on the
UK. British banks are very likely to lose their right to
work freely throughout the EU. And if the UK falls
outside the common market, it will diminish foreign
companies' interest in investing in the country.
Investments stopped already before the referendum as
many companies awaited the results before deciding on
new investments. For many years, foreign investment in
business has been encouraged. In 2015, the United
Kingdom was the European country where foreign companies
made the largest investments.
Inflation, which had fallen below the 2 percent per
annum that the Bank of England has set as a ceiling from
2014, picked up again in autumn 2016, not least because
of the falling exchange rate for the pound. Inflation
continued to rise after that and has periodically
climbed over the 2 percent bar.
Since 1998, the United Kingdom has a trade deficit.
For many years the exchange rate of the pound was high
which led to British exports becoming more expensive,
while imports became cheaper. However, the trade deficit
has continued to be large even in recent years when the
pound lost in value.
The service sector now accounts for a significant
portion of exports. Nevertheless, since 1984, the United
Kingdom has a significant current account deficit,
which, in addition to commodity trade, includes tourism
and trade in services, as well as income from
investments and other transfers. The deficit is largely
due to the fact that foreign companies invest more in
the UK than British companies invest abroad.
In recent years, the Bank of England has been
criticized for not acting sufficiently forcefully
against people's and companies' attempts to escape tax
via so-called tax havens. These include the British
Virgin Islands and other British overseas territories
and crown possessions, as well as London's financial
district, the City of London, which has complicated
legal status for complex historical reasons.
FACTS - FINANCE
GDP per person
US $ 42,491 (2018)
US $ 2,825,208 M (2018)
1.4 percent (2018)
Agriculture's share of GDP
0.6 percent (2018)
Manufacturing industry's share of GDP
8.9 percent (2018)
The service sector's share of GDP
70.5 percent (2018)
1.8 percent (2019)
Government debt's share of GDP
86.8 percent (2018)
US $ 468 031 M (2018)
US $ 652 144 million (2018)
- US $ 108,752 million (2018)
Commodity trade's share of GDP
41 percent (2018)
Main export goods
computers and other electronic equipment, vehicles,
pharmaceuticals, workshop products, crude oil,
Largest trading partner
EU countries, in particular Germany, the Netherlands
and France, the USA and China
Cameron vetoes amendment of EU treaty
The deep crisis in the euro co-operation is giving new power to EU-critical
forces within the Conservative Party that are pressing for Prime Minister
Cameron to take back powers from the EU. He promises to veto any proposals for
new EU rules that could threaten the UK financial sector. At a crisis meeting in
Brussels on December 8, he also chooses not to agree to the proposed amendments
to the Lisbon Treaty. Cameron's decision is criticized by Labor, but also by
some Liberal Democrats within the government. The amendments are largely about
tougher budgetary rules to prevent a new similar crisis to the one currently
underway in the euro zone.
Crisis in contact with Iran
Relations with Iran deteriorate after the International Atomic Energy Agency
(IAEA) reports that Iran is likely preparing nuclear weapons. The report
prompted Britain to stop all financial contacts with Iran, after which a number
of Iranian protesters, described as students, stormed and vandalized the British
embassy in Tehran. London responds by immediately closing Iran's embassy in
London and expelling all diplomats.
Osborne promises more austerity
In his autumn speech, Finance Minister George Osborne makes it clear that the
economy has developed worse than expected and that more austerity is needed for
the government to get its finances organized. Among other things, a planned
increase in the retirement age will be announced and a one percent ceiling will
be set for wage increases in the public sector for two years from 2012 when the
prevailing wage halt ceases. The following day, an extensive strike is held
among public employees who protest against changes in the pension system. The
strike halted public transport in many quarters and paralyzed parts of the
school system and the healthcare sector. According to trade unions, two million
employees strike and the strike is described as the most extensive in the
country in ten years.
New succession order for the royal house
At the end of the month, the 16 countries within the Commonwealth agree to
change the succession order for the British royal house so that the oldest child
can inherit the crown, regardless of gender. The ban on the British monarch to
marry a Catholic should also be lifted.
Conservative EU opponents create problems for Cameron
EU opponents within the Conservative Party are presenting a motion this fall
to hold a referendum on whether Britain should remain within the EU, leave the
organization or renegotiate the terms of membership. However, a majority of the
lower house voted against the proposal, 483 votes in favor and 111 against.
However, 81 Conservative members vote in favor of the motion, which is seen as a
setback for Prime Minister Cameron.
Criticism of how the British army treated prisoners of war in Iraq
An investigation drew sharp criticism of how the British army treated a group
of prisoners of war in Basra, Iraq in 2003, one of whom, Baha Mousa, an Iraqi
civilian who died from his injuries. The former Judge William Gauge is not only
critical of the soldiers who carried out the systematic mistreatment of the
prisoners, but felt that several of their commanders should have known what was
going on and intervened. The 1400-page report also contains 73 recommendations
to prevent similar abuse in the future.
Violent crows in several big cities
Britain is shaken by the worst unrest in decades. The riots start in
Tottenham in north London after police shot a man in connection with an arrest.
The unrest is spreading rapidly to mostly decrepit and socially deprived areas
in a number of British metropolitan cities. Prime Minister Cameron gives the
police the right to use the hardest possible methods. More than 2,000 people are
arrested during four nights of violence and the following days. Five people are
killed in connection with the rattlesnakes. While the courts of justice work
full time, Cameron declares "full-scale war" against street gangs to curb what
the government describes as a "moral decay" in society. Among other things,
there may be talk of tightening the conditions for those receiving social
support. A "national citizen service" will get 16-year-olds to undertake
"voluntary" work. People who have been arrested during the riots risk losing
their support even if they are not imprisoned.
News of the World in eavesdropping scandal
The sensational Sunday newspaper News of the World is in the limelight after
it emerged that the magazine hacked into a large number of private cell phones
belonging to other murder victims, relatives of soldiers killed in Afghanistan
and victims of the terror attacks in London 2005. Prime Minister Cameron adds an
investigation into the scandal, led by judge Brian Leveson, but troubled by the
fact that his own former communications manager, Andy Coulson, was
editor-in-chief of the newspaper for several years when, among other things, the
interception of the British court took place. Following an advertisement
boycott, the owner, Murdoch Group News Corporation, decides to close the
newspaper. Coulson and several other executives in the group are arrested by
police, suspected of unlawful intrusion into phones and corruption. Among other
things, the newspaper is suspected of having paid police to leak secret
information from ongoing criminal investigations. Senior police chiefs are also
forced to resign and a debate erupts about leading politicians' close contacts
with and dependent on the Murdoch Group's newspapers.
Strike against cuts
At the end of the month, hundreds of thousands of public servants strike in
protest against the government's plans to raise the retirement age and at the
same time deteriorate their pension conditions.
The SNP gets its own majority in Scotland
In the election in Scotland, the Scottish Nationalist Party (SNP) gets its
own majority. In the election held in Wales at the same time, Labor becomes the
largest party with 30 seats. In Northern Ireland, the Democratic Unionist Party
becomes the largest party alongside Sinn Féin, receiving 38 and 29 seats
respectively (see also Conflicts: Northern Ireland).
No to a new election system
The British vote with a clear majority (almost 68 percent) refusing to
introduce a new partially proportional electoral system, called Alternative Vote
(AV). It is a severe setback for the Liberal Democrats who have pushed the
Greater powers to Wales
Nearly two-thirds of Wales voters approve a proposal to give the Welsh
Parliament the right to legislate.
Protests against cuts
On March 26, between 250,000 and 500,000 people gather in London to protest
the cuts. The demonstration is organized by the trade union organization TUC. A
newly formed organization UK Uncut, which seeks to address the inequality
prevailing in the tax system, is also conducting several manifestations in which
they protest that well-off individuals and companies pay less in taxes than most
others. A small group of protesters raises and smashes windows in shops and
banks and colludes with police. Both TUC and UK Uncut are distancing themselves
from the methods of violence.
Lower growth and continued large budget deficit
Finance Minister Osborne presents a new budget which he says will increase
growth. According to his forecast, growth will be lower than previously
forecast, a decline from 2.1 percent to 1.7 percent. In order to reduce
unemployment, new apprenticeships must be created and special support will be
introduced for those who will buy their first home. Britain's borrowing costs
are rising, largely due to higher inflation. According to Osborne, the budget
deficit should land at 10 percent, one percent lower than the year before.