The economy of the United Kingdom is the world's sixth-largest national economy measured by both nominal GDP and purchasing power parity (PPP). The UK has the third-largest national economy in Europe measured by nominal GDP (after Germany and France) and the second-largest measured by PPP (after Germany). Its GDP per capita is ranked the 20th highest in the world in nominal terms and the 17th highest in PPP terms. 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 Organisation and the United Nations. The British economy is made up (in descending order of size) of the economies of England, Scotland, Wales and Northern Ireland.
In the 18th century the UK was the first country in the world to industrialise, and for much of the 19th century possessed a predominant role in the global economy.However, by the late 19th century, the Second Industrial Revolution in the United States and the German Empire caused an increasing challenge to Britain's role as the leader of the global economy. The costs of fighting both the First World War and the Second World War further weakened the relative economic position of the UK, and by 1945 Britain had been superseded by the United States as the chief player in the global economy. However, the UK still maintains a significant role in the world economy.
The UK is one of the world's most globalised countries. London is the world's largest financial centre alongside New York, has the largest city GDP in Europe and is home to the headquarters of more than 100 of Europe's 500 largest companies. The aerospace industry of the UK is the second- or third-largest aerospace industry in the world, depending upon the method of measurement. The British economy is boosted by North Sea oil and gas reserves, overall worth an estimated £250 billion in 2007.
The UK entered its worst recession since World War 2 in 2008. However the UK economy grew by 1.2 per cent in Q2 of 2010 and 0.8 per cent in Q3, the fastest consecutive growth in over 10 years, accelerating from the 0.4 per cent growth recorded in Q1 of 2010 and 0.4 per cent growth in Q4 of 2009. The U.K. economy has grown 2.8% since the end of the recession; the UK economy has recovered twice as fast as expected so far. The UK is currently ranked fourth in the world (and first in Europe) in the World Bank's Ease of Doing Business Index.
History
Following the end of World War II, there was a long interval without a major recession (1945–1973) and a 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. 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, though the figures levelled off by the election of 1979.
Neoliberalism
However, the 1980s saw a strong reversal of fortunes for the British economy. A new period of neo-liberal economics began with the advent of the government of Margaret Thatcher who was elected in 1979. Most state-owned enterprises in the industrial and service sectors, which since the 1940s had been nationalised, were privatised. As a result, the British Government owned very few industries or businesses by the mid 1980s. GDP fell 5.9% at first then rose to 5% at its peak in 1988, according to the IMF, one of the highest rates of any European nations. as banks and other financial institutions in the UK enjoyed the liberalisation of the regulatory structures and greater freedom to explore new investment vehicles with less oversight. However, Mrs 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 and remaining above that level until the spring of 1987. This was largely due to the closure of many outdated factories and coalpits which were inefficient and no longer viable to keep open. Unemployment peaked at nearly 3,300,000 during 1984 but fell dramatically during the final three years of the decade, standing at just over 1,500,000 by the end of 1989.
Another severe recession hit the British economy at the start of the 1990s, beginning in the summer of 1990 and lasting until the end of 1992. This recession was a global one, brought on by the savings and loan crisis in the United States of America, which caused the economy to shrink by 8%, while unemployment increased from around 1,700,000 at the start of the recession to nearly 3,000,000 at the end of it. The recession ended at the turn of 1993 and subsequent economic recovery was extremely strong. Furthermore, unlike the previous recession, there was a practically instant and substantial fall in unemployment, though it was not enough to prevent the Tory government (led since November 1990 by John Major) from a landslide election defeat to Tony Blair's Labour in May 1997.
Blair was in power for 10 years and during his rule he saw 40 successive quarters of economic growth. In the second quarter of 2008, the economy finally endured a quarter of detraction. 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 past rates of growth, such as the 6.5% peak in the early 1970s, although over-all growth was more sustained than earlier. 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 boom ended in 2008 when the United Kingdom suddenly entered a recession 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 second largest bank in the UK and the fifth largest in the world by market capitalisation, was effectively nationalised on 13 October 2008, when the British Government announced it would take a stake of up to 58% in the Group. By mid 2009, the HM Treasury had a 70.33% controlling shareholding in RBS, and a 43% shareholding through UK Financial Investments Limited of Lloyds Banking Group, formerly the fifth largest banking group in the UK. This recession has seen unemployment rise substantially, from just over 1,600,000 in January 2008 to nearly 2,500,000 in October 2009 yet less so when compared to countries such as Germany, France or Spain.
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 this rate remains far lower than many other European nations. However, interest rates have been slashed to 0.5%. In 2007, according to the International Monetary Fund, the United Kingdom had the ninth highest level of GDP per capita in the European Union in terms of purchasing power parity, after Luxembourg, Ireland, the Netherlands, Austria, Denmark, Sweden, Belgium and Finland. However, in common with the economies of other English-speaking countries, it has higher levels of income inequality than many European countries. 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, despite significant oil revenues, according to the IMF. This was mainly the result of a large deficit in the trade 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 the united Germany, it 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). The United Kingdom currently ranks 21st on the Human Development Index.
Recent
The UK entered a recession in Q2 of 2008, according to the UK Office of 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 of 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.
On 23 January 2009, Government figures from the Office for National Statistics showed that the UK was officially in recession for the first time since 1991. It entered a recession in the final quarter of 2008, accompanied by rising unemployment which increased from 5.2% in May 2008 to 7.6% in May 2009. The unemployment rate among 18 to 24-year-olds has risen from 11.9% to 17.3%. Though initially Britain lagged behind other major economies including Germany, France, Japan, and the US which all returned to growth in the second quarter of 2009, the country eventually returned to growth in the last quarter of 2009. On January 26, 2010, it was confirmed that the U.K. had left its recession, the last major economy in the world to do so In the 3 months to February 2010 the U.K. economy grew yet again by 0.4% In Q2 of 2010 the economy grew by 1.2% the fastest rate of growth in 9 years, in Q3 of 2010 figures released showed the UK economy grew by 0.8%; this was the fastest Q3 growth in 10 years.
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