The UK is the 6th largest economy in the world according to GDP (current prices, US dollars) and the 8th largest in the world according to GDP (PPP). In 2012, the UK’s GDP (current prices) was $2.44 trillion and its GDP (PPP) was $2.336 trillion.
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.
During its heyday as the British Empire, the UK was the largest and most influential economy in the world. As the birthplace of the first Industrial Revolution during the 18th century, the UK ushered in what economic historians agree to be the most significant event in mankind’s history. The UK was also able to be at the forefront of technological advances during this time, giving it a strong economic advantage over any other country in the world.
However as other countries began to catch up technologically wise, UK’s economy was also greatly affected by the two World Wars and the breaking up of the British Empire. Although the UK economy has since recovered, it is unlikely to reclaim its former position as the top economic power in the world.
Today, the UK economy faces another struggle to recover from the 2008 financial crisis. Prior to the financial crisis, the economy was experiencing GDP growth rates of around 3 percent; but after the economy contracted by 0.968 percent and 3.974 percent in 2008 and 2009 respectively, the UK could only post a 1.799 percent GDP growth rate (constant prices, national currency) in 2010 – one of the slowest recoveries among the OECD nations.
Part of the reason for UK’s slow economic growth has been the austerity plan put into place by the government in 2010. The UK austerity plan was introduced as a method to reduce a massive debt that had reached record levels after the 2008 global financial crisis. Besides cutting public spending and services, the UK government have also implemented a new wave of tax increases as part of its austerity plan. Although these methods can be effective in reducing the risk of a future debt crisis, it also has the ability to hamper economic growth. A recent Financial Times report suggests that the UK’s “era of austerity” may stretch to 2020 – two years later than the government’s pledge to eradicate the budget deficit by 2018, which had already been revised from 2015.