The e¬¬conomy of the United Kingdom

 

The federal educational agency

The state educational institutional of high professional education

The Kola Branch of Petrozavodsk state university

 

 

                                    

                                       The Economic Department

                                                                Discipline English language

                                                                                     

 

 

         The economy of the United Kingdom

                                                               

                                                                 

 

                                                                    

 

                                                                     The report

                                                                     Of the students of  II course

                                                                     Department of  Economics

                                                                     Polyakova Olesya

 

 

 

 

 

 

 

Apatity

2013

CONTENTS

 

INTRODUCTION ...........................................................................................4

1. History………………………………………………………………………….5

    1.1 1945 to 1979………………………………………………………………5

     1.2 1979 to 1997……………………………………………………………….5

     1.3 1997 to 2008……………………………………………………………….6

     1.4 2008 to present……………………………………………………………..7

2. Sectors………………………………………………………………………….7

    2.1 Agriculture, hunting, forestry, and fishing……………………….………7

     2.2 Construction……………………………………………………………….8

     2.3 Production industries………………………………………………..……8

             2.3.1 Electricity, gas and water supply………………………………….8

             2.3.2 Manufacturing……………………………………………………….8

             2.3.3 Mining and quarrying……………………………………………….9

      2.4 Service industries…………………………………………………….……9

            2.4.1 Creative industries…………………………………………………9

            2.4.2 Education, health and social work………………………….……10

            2.4.3 Financial and business services………………………………..…10

            2.4.4 Public administration and defence………………………….……11

            2.4.5 Tourism………………………………………………………….…11

             2.4.6 Transport, storage and communication……………………….……11

           2.4.7 Wholesale and retail trade………………………………………...12

3. Currency………………………………………………………………………12

4. Government involvement……………………………………………………13

    4.1 Taxation and borrowing…………………………………………………13

5. Poverty…………………………………………………………………………14

CONCLUSION…………………………………………………………………15

REFERENCES…………………………………………………………………16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTRODUCTION

The economy of the United Kingdom is the sixth-largest national economy in the world measured by nominal GDP and eighth-largest measured by purchasing power parity (PPP), and the third-largest in Europe measured by nominal GDP (after Germany and France) and second-largest measured by PPP (after Germany). The UK's GDP per capita is the 22nd highest in the world in nominal terms and the 22nd highest measured by PPP. The British economy encompasses (in descending order of size) the economies of England, Scotland, Wales and Northern Ireland.

The UK has one of the world's most globalised economies. London is the world's largest financial centre alongside New York and has the largest city GDP in Europe. The aerospace industry of the UK is the second- or third-largest national aerospace industry, depending upon the method of measurement. The pharmaceutical industry plays an important role in the UK economy and the country has the third-highest share of global pharmaceutical R&D expenditures (after the United States and Japan. 

The UK is a member of the Commonwealth of Nations, the European Union, the G7, the G8, the G20, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the World Bank, the World Trade Organisationand the United Nations. The UK is currently ranked seventh in the world in the World Bank's Ease of Doing Business Index.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. HISTORY

1.1 1945 to 1979

Following the end of the Second World War, the United Kingdom enjoyed a long period without a major recession (from 1945 to 1973) and a rapid growth in prosperity in the 1950s and 1960s. 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.

However, following the severe shock of the 1973 oil crisis and the 1973–1974 stock market crash, the British economy had fallen into recession by the time Edward Heath's Conservative Party government had been ousted by the Labour Party as Harold Wilson moved into office for the second time, forming a minority government on 4 March after the general election on 28 February ended in a hung parliament, and then securing a three-seat majority in a second election in October that year.

GDP had fallen by 1.1%, recording weaker growth than other European nations in the 1970s overall; even when the recession ended in 1975, the economy was still blighted by double-digit inflation and unemployment was rising. Overall economic picture deteriorated with accelerating inflation and slumping pound sterling pushing the UK to accept an IMF rescue to the tune of £2.3bn loan. The IMF forced Chancellor Denis Healey into harsh public spending cuts and austere economic measures as part of reforms put through to improve the economic situation and as a condition to the rescue package. Soon enough, in 1979 the government fell.

1.2 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 rule.

During the 1980s most state-owned enterprises were privatised, taxes cut and markets deregulated. GDP fell 5.9%  at first but growth rose to 5% at its peak in 1988, one of the highest rates of any European nation.

However, Thatcher's modernisation of the British economy was far from trouble free; her battle against inflation resulted in mass unemployment with the jobless count passing 3,000,000 by the start of 1982 compared to 1,500,000 three years previously. This was in part due to the closure of outdated factories and coalpits which were no longer economically viable; this process continued for most of the rest of the decade. Unemployment peaked at nearly 3,300,000 during 1984 before falling dramatically in the final three years of the decade, standing at just over 1,600,000 by the end of 1989. However, the British economy slid into another recession during the second half of 1990, concurrent with a global recession, and caused the economy to shrink by a total of 8% from peak to trough and unemployment to increase from around 1,600,000 to nearly 3,000,000 by early 1993, when the recession ended, and the subsequent economic recovery was extremely strong. Unlike the early 1980s recession the recovery saw a rapid and substantial fall in unemployment, which was down to 1,700,000 by 1997.

1.3 1997 to 2008

The Labour Party, led by Tony Blair, returned to power in May 1997 after 18 years in opposition. During Blair's 10 years in office there were 40 successive quarters of economic growth, lasting until the second quarter of 2008. The previous 15 years had seen one of the highest economic growth rates of major developed economies during that time and certainly the strongest of any European nation. GDP growth had briefly reached 4% in the early 1990s, gently declining thereafter. Peak growth was relatively anaemic compared to prior decades, such as the 6.5% peak in the early 1970s, although growth was smoother and more consistent. Annual growth rates averaged 2.68% between 1992–2007 according to the IMF, with the finance sector growth contributing a greater part than previously. This extended period of growth ended in 2008 when the United Kingdom suddenly entered a recession – its first for nearly two decades – brought about by the global financial crisis. 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, which at its peak was the fifth-largest in the world by market capitalisation, was effectively nationalised on 13 October 2008. By mid 2009, HM Treasury had a 70.33% controlling shareholding in RBS, and a 43% shareholding through UK Financial Investments Limited of  Lloyds Banking Group. The recession saw unemployment rise from just over 1,600,000 in January 2008 to nearly 2,500,000 in October 2009.

The UK economy had been one of the strongest EU economies in terms of inflation, interest rates and unemployment, all of which remained relatively low until the 2008–09 recession. Unemployment has since reached a peak of just under 2.5 million (7.8%), the highest level since early 1990s, although still far lower than some other European nations. However, interest rates have been reduced to 0.5%. During August 2008 the IMF warned that the UK economic outlook had worsened due to a twin shock: financial turmoil as well as rising commodity prices. Both developments harm the UK more than most developed countries, as the UK obtains revenue from exporting financial services while recording deficits in finished 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. During May 2008, the IMF advised the UK government to broaden the scope of fiscal policy to promote external balance. Although the UK's "labour productivity per person employed" has been progressing well over the last two decades and has overtaken productivity in Germany, it still lags around 20% behind France's level, where workers have a 35-hour working week. The UK's "labour productivity per hour worked" is currently on a par with the average for the "old" EU (15 countries). In 2010, the United Kingdom ranked 26th on the Human Development Index.

1.4 2008 to present

 

The UK entered a recession in Q2 of 2008, according to the UK Office for National Statistics (ONS) and exited it in Q4 of 2009. The revised ONS figures of November 2009 showed that the UK had suffered six consecutive quarters of negative growth. As of the end of November 2009, the economy had shrunk by 4.9%, making the 2008–2009 recession the longest since records began. In December 2009, the Office for National Statistics revised figures for the third quarter of 2009 showed that the economy shrank by 0.2%, compared to a 0.6% fall the previous quarter.

In Q1 of 2012, the UK economy entered a double-dip recession, in the process posting three consecutive negative quarters of growth. While the first half of 2012 saw inflationary pressures subside and business confidence increase, a number of fundamental weaknesses remained, most notably a decline in the productivity of British business. As of the end of Q2 of 2012, the UK economy had contracted 1.2% in three quarters. The 'Jubilee' effect has been blamed for the contraction in Q2 2012 due to lost working days. Figures from July and August indicate strong growth returning. Services showed increased expansion while manufacturing posted growth of 3.2% in July, the strongest since July 2002. Industrial production increased 2.9%, the strongest since February 1987. In Q3 2012 the UK's economy bounced back from recession very strongly with 1% growth, then fastest since Autumn 2007.

The Office for National Statistics has estimated that in 2011, 14 million people were at risk of poverty or social exclusion, and that one person in 20 (5.1%) was now experiencing “severe material depression,” up from 3 million people in 1977. Research commissioned from the independent House of Commons library showed that real wages (wages minus inflation) in the UK fell by 3.2% between the third quarter of 2010 and the third quarter of 2012. In April 2013, the government was criticized for cutting several welfare programs while lowering taxes on the rich and raising taxes on the middle class. Economic inequality has grown faster in the UK than in any other developed country since the 1980s.

 

2. SECTORS

2.1 Agriculture, hunting, forestry, and fishing

Agriculture is intensive, highly mechanised, and efficient by European standards, producing about 60% of food needs, with less than 1.6% of the labour force (535,000 workers). It contributes around 0.6% of British national value added. Around two-thirds of the production is devoted tolivestock, one-third to arable crops. 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 2006 (page 110) reports that "agriculture, hunting, forestry and fishing" added gross value of £10,323 million (at 2006 prices) to the UK economy in 2004.

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

2.2 Construction

The Blue Book 2006 reports that this industry added gross value of £64,747 million to the UK economy in 2004. It is the fastest growing sector of the economy – after the 2010 Recession.

2.3 Production industries

2.3.1 Electricity, gas and water supply

The Blue Book 2006 reports that this sector added gross value of £17,103 million to the UK economy in 2004. The United Kingdom is expected to launch the building of new nuclear reactors to replace existing generators and to boost UK's energy reserves.

2.3.2 Manufacturing

In 2009 the UK manufacturing sector generated approximately £140 billion in gross value added and employed around 2.6 million people. Of the approximately £16 billion invested in R&D by UK businesses in 2008, approximately £12 billion was by manufacturing businesses. In 2008, the UK was the sixth-largest manufacturer in the world measured by value of output.

In 2008 around 180,000 people in the UK were directly employed in the UK automotive manufacturing sector. 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. The UK is a major centre for engine manufacturing, and in 2008 around 3.16 million engines were produced in the country.

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

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. In 2007 exports of pharmaceutical products from the UK totalled £14.6 billion, creating a trade surplus in pharmaceutical products of £4.3 billion. The UK is home to GlaxoSmithKline and AstraZeneca, respectively the world's third- and seventh-largest pharmaceutical companies.

2.3.3 Mining and quarrying

The Blue Book 2006 reports that this sector added gross value of £21,876 million to the UK economy in 2004.In 2007 the UK had a total energy output of 9.5 quadrillion Btus, of which the composition was oil (38%), natural gas (36%), coal (13%), nuclear (11%) and other renewables (2%). In 2009, the UK produced 1.5 million barrels per day (bbl/d) of oil and consumed 1.7 million bbl/d. Production is now in decline and the UK has been a net importer of oil since 2005. As of 2010 the UK has around 3.1 billion barrels of proven crude oil reserves, the largest of any EU member state.

In 2009 the UK was the 13th largest producer of natural gas in the world and the largest producer in the EU. Production is now in decline and the UK has been a net importer of natural gas since 2004. In 2009 the UK produced 19.7 million tons of coal and consumed 60.2 million tons. In 2005 it had proven recoverable coal reserves of 171 million tons. 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).  Based on current UK coal consumption, these volumes represent reserves that could last the UK between 200 and 400 years.

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 – and BG Group.

2.4 Service industries

The service sector is the dominant sector of the UK economy, and contributes around 73% of GDP.

2.4.1 Creative industries

The creative industries accounted for 7% GVA in 2005 and grew at an average of 6% per annum between 1997 and 2005. Key areas include London and the North West of England which are the two largest creative industry clusters in Europe.

2.4.2 Education, health and social work

In 2008 the education, health and social work sector had a total gross value added of around £170 billion, of which around £145 billion was compensation to employees. In 2008 the sector had a total gross capital formation of around £17.7 billion.

In 2008 health and social work had a gross value added of around £93.7 billion. 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. 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.

In 2008 education had a gross value added of around £76 billion. In 2007/08 higher education institutions in the UK had a total income of £23 billion and employed a total of 169,995 staff. 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).