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.
Countryaah.com: Major imports by United Kingdom, covering a full list of top products imported by the country and trade value for each product category.
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.
Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including GBR which represents the country of United Kingdom. Check findjobdescriptions to learn more about United Kingdom.
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 through loans.
Hard savings
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 GDP.
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)
Total GDP
US $ 2,825,208 M (2018)
GDP growth
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)
Inflation
1.8 percent (2019)
Government debt’s share of GDP
86.8 percent (2018)
Currency
pound
Merchandise exports
US $ 468 031 M (2018)
Imports
US $ 652 144 million (2018)
Current account
– 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
2011
December
Cameron vetoes amendment of EU treaty
December 8
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.
November
Osborne promises more austerity
November 29th
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.
October
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.
September
Conservative EU opponents create problems for Cameron
September 24th
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.
August
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.
July
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.
June
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.
May
The SNP gets its own majority in Scotland
May 5th
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
May 5th
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 issue.
March
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.
