During the heyday of the British Empire, the UK was the largest and most influential economy in the world. As the birthplace of the industrial revolution, the UK was at the forefront of technological advances during the 18th to 19th century.
However other countries, and in particular the US, began to catch up to the UK technologically wise. Meanwhile, the UK’s global influence was also beginning to wane as many British colonies were in the process of declaring independence. Finally, the damage received during World War I and World War II severely weakened the UK economy. Although the UK economy has since recovered from both World Wars, it is unlikely to reclaim its former position as the top economic power in the world.
Today, the UK is the 6th largest economy in the world in 2012 according to GDP (current prices) and the 8th largest in the world according to GDP (PPP). The UK is also a member of the G7 (now expanding to the G8 and G20), the EU and the OECD (Organisation for Economic Cooperation and Development).
Although the UK economy faced another major setback during the 2008 global financial crisis, the UK government has implemented austerity measures in order to reduce its global debt as well as facilitate for long-term economic growth. These plan aims to lower London's budget deficit from over 11 percent of GDP in 2010 to nearly 1 percent by 2015. However this has since been revised by the government to 2018.
UK’s Economic Geography
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.
Although 24.88 percent of the UK is considered to be arable land, vast plots of agricultural land have remained uncultivated. Many critics have blamed subsidises provided by the EU Common Agricultural Policy as well as price distortions created by the Metropolitan Green Belt, for the lack of agricultural activity on these lands.
Apart from its arable land, the UK also has a healthy supply of natural resources. In the past, coal and iron ore was a major player in the UK economy. The UK's primary industry sector was once dominated by coal, which could be found in south Wales, Midlands, Yorkshire, North East England and southern Scotland. However since 1981, the production of coal has fallen drastically by more than 75 percent. In 1981, the UK was the 4th largest coal producing nation in the world – today the UK is ranked 15th.
Iron ore production has also played an important role in UK’s industries. As the primary element of steel, iron ore production supports the UK’s steel and manufacturing industries. Under manufacturing, it also assists in the production of automobile and aerospace equipment.
The UK also has the 32nd largest proven oil reserves and the 44th largest proven natural gas reserves in the world. Oil mining activities are concentrated on the east coast of Scotland and North East England. The waters in the North Sea off the east coast of Scotland contain nearly half of the UK's remaining oil reserves, and a quarter of reserves are located in the North Sea near the Shetland Islands. Most natural gas production is also located in the North Sea, with a small amount onshore and in the Irish Sea. However, due to its limited supply, the UK is a net importer of both oil and natural gas.
Presently, a North-South divide exists within the UK, due to a gradual shift in economic focus. In stark contrast to Southern UK, which contains the wealthy financial and technological industries, Northern England and Scotland have seen poor economic performance over the years due its industrial roots. Although the UK government has sought to rectify this imbalance, the uneven distribution of economic wealth in the UK has led to many UK citizens migration from the north to the south – resulting in a housing market problem.
UK’s Population and Labour Force
The population for the UK in 2012 was 63.244 million. Out of this population, 17.3 percent are aged below fifteen, 65.4 percent are between the ages of fifteen and sixty four, while 17.3 percent are aged sixty-five and above. The age groups are not evenly distributed around the country, with some areas having many young adults and children and some areas having large numbers of older people.
The UK has the 20th largest labour force in the world, with 31.9 million workers. However, unemployment remains high in the UK at 8.02 percent, and is likely to remain so in the wake of the UK’s austerity plans. The UK government has warned that nearly half a million jobs could be lost in the public sector alone as the government continue its cut on public spending.
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.
UK’s Industry Sectors
Despite only contributing 0.7 percent of UK’s GDP in 2012, 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 were responsible for 21.1 percent of UK’s GDP in 2012. The list of industries include machine tools, electric power equipment, automation equipment, railroad equipment, shipbuilding, aircraft, motor vehicles and parts, electronics and communications equipment, metals, chemicals, coal, petroleum, paper and paper products, food processing, textiles, clothing, and other consumer goods.
Manufacturing of goods is particularly important for UK industries. 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 is the dominant component of UK’s economy, contributing to 77.2 percent of the nation’s GDP. 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.
Read more about the UK's economy, including industry information, featured analysis and trade statistics below.