United Kingdom: Economic and Political Overview

United Kingdom flag United Kingdom: Economic and Political Overview

Economic and Political Overview

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

The sixth-largest in the world, the British economy's growth has slowed since the 2016 referendum on leaving the European Union (Brexit). The situation worsened with the outbreak of the COVID-19 pandemic, with GDP falling an unprecedented 9.8% in 2020. The downward trend continued in the first quarter of 2021; however, GDP started rebounding since then, with private and public consumption as the main driver, reaching an estimated 6.8%. The IMF expects real UK GDP to reach pre-pandemic levels only by the second quarter of 2022 when business investment is forecast to increase strongly thanks to the ‘super-deduction’, which allows businesses to offset 130% of eligible investment spending. Overall, GDP is forecast to grow 5% this year and 1.9% in 2023. In addition to persistent economic challenges caused by the recrudescence of COVID-19 and Brexit-related trade disruption, the UK is also likely to continue being hit by significant supply-side constraints and acute labour shortages.

The fiscal efforts undertaken in recent years have been jeopardized by the emergency measures the government had to introduce to fight the epidemic-induced crisis, including short-time work schemes, grants for self-employed, grants and tax relief for businesses and additional funding for the NHS, for a total of more than 19% of GDP (EU Commission). Coupled with a decrease in revenues, the general government balance recorded a deficit of 5.6% in 2021, with the debt-to-GDP ratio skyrocketing to 108.5%, from a pre-pandemic level of 85.2% (IMF). As the economy recovers and the fiscal support is scaled back, the budget deficit is expected to gradually decline to 4.9% in 2022 and 3.5% the following year; whereas the general government gross debt should increase further, reaching 109.4% by the end of 2023. Due to a rise in global energy prices and increased consumer spending, inflation accelerated towards the end of the year hitting 2.2%, and is expected to further increase to 2.6% this year before decelerating to 2% in 2023 (IMF). The Bank of England’s Monetary Policy Committee confirmed that some modest tightening of monetary policy over the forecast period is likely in order to meet the inflation target sustainably in the medium term.

The measures taken by the government to support employees and the self-employed helped to contain the rise of the unemployment rate, which stood at an estimated 5% in 2021 (up from 3.8% before the pandemic). Such rate should remain stable in 2022, before decreasing marginally to 4.7% the following year (IMF). The country’s GDP per capita (PPP) was estimated at USD 47,089 in 2021 by the IMF, but the relatively solid macroeconomic performance of the United Kingdom conceals weaknesses and situations of inequality. Thus, as the IMF has emphasised, strengthening human capital is a key priority. The government's efforts to invest in infrastructure, increase the supply of housing and increase the participation of women in the labour market will also help support more sustainable and inclusive growth.

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 2.003.003.003.003.00
GDP (Constant Prices, Annual % Change) -9.3e7.43.60.30.6
GDP per Capita (USD) 41e47475155
General Government Balance (in % of GDP) 0.5-3.2-4.3-1.7-0.4
General Government Gross Debt (in % of GDP) 102.695.387.079.976.7
Inflation Rate (%) 0.92.69.19.03.7
Unemployment Rate (% of the Labour Force) 4.64.53.84.85.0
Current Account (billions USD) -69.01-82.48-153.94-157.87-150.61
Current Account (in % of GDP) -2.5-2.6-4.8-4.5-4.0

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

The agricultural sector accounts for 0.6% of GDP, but is very productive, the country managing to produce enough to meet around 60% of its food demand. The primary sector employs 1% of the active population (World Bank, latest data available). The main crops produced in the UK are potatoes, beets, wheat and barley. Livestock farming (especially sheep and cattle) remains a major agricultural activity. The fishing sector is also well developed but is currently suffering from the depletion of fish volumes in traditional fishing areas (the subject was a key issue of the trade deal concluded with the EU, which states that the UK will have the right to completely exclude EU boats after 2026). According to the latest data from the Office for National Statistics (ONS), the utilised agricultural area stands at 8.8 million hectares in 2021. The country’s total income from farming in 2020 was GBP 5,121 million, -2.5% year-on-year (ONS, latest data available).

The United Kingdom is one of the world's largest producing countries, with particularly important civil and military aerospace and pharmaceutical industries, and has considerable mineral resources. Once the 10th-largest oil producer in the world with huge natural gas reserves, its production is declining rapidly. Nevertheless, groups such as British Petroleum (BP) continue to be among the world leaders in the petroleum industry. The industrial sector, which accounts for 17% of GDP and employs 18.1% of the working population, is not very competitive, mainly due to low productivity. Some of the main sectors include machine tools, transport equipment and chemicals. Among the sectors with strong potential are information and communication technologies, biotechnologies, aviation, renewable energies and defence. In 2020, the manufacturing sector accounted for 9.6% of total UK economic output (as a consequence of the COVID-19 crisis, production output fell by 8.6% vis-à-vis 2019, with manufacturing output declining by 9.9% - ONS).

Despite Brexit, London remains the largest financial centre in Europe, on par with New York, and it is also home to the headquarters of many multinationals. The banking sector has been very dynamic, same as for the tourism sector, which generates around 10% of GDP. However, the tertiary sector was no exception to the 2020 COVID-19-induced crisis, with total services output losing 8.9% compared to one year earlier (ONS). There are more than 370 monetary financial institutions in the UK, with just under half the sector balance sheet (49.7%) being held in GBP, 18.4% in EUR and 31.9% in other currencies (European Banking Federation).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 1.0 18.1 80.8
Value Added (in % of GDP) 0.6 16.9 72.8
Value Added (Annual % Change) -10.0 -10.8 -9.7

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

Find more information about your business sector on our service Market Reports.

 
 
 

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
78,4/100
World Rank:
7
Regional Rank:
3

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
7.70/10
World Rank:
17/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.
 

Return to top

 

Return to top

Any Comment About This Content? Report It to Us.

 

© Export Entreprises SA, All Rights Reserved.
Latest Update: November 2022

Republic Hellenic