The Economy of Great Britain

 

 

 

 

 

Реферат на тему:

 

«The Economy of Great Britain»

 

 

 

 

Выполнила:

студентка 3 "Б" курса

Саттарова Э.И

        

Проверил: Абдуллин Ф.Н.

 

 

Арск

2014 год

 

 

 

 

 

 

PLAN

Econimy of the UK...................................................................

UK Economic Profile.................................................................

UK’s Industry Sectors................................................................

The Economyof Great Britain......................................................

Заключение

References

 

• The title of the article is the Economy of Great Britain
• The author of the text is Michael Bordo. The article was published in “The Economist” on the 15 of October 2009.
• The text describes the situation historic British industry as an element of economy in the twentieth century.
• The author starts by telling the reader the global problem in Economy of Great Britain in 1900-1990 years.
• I find the article interesting because it about History Economics in Great Britain. Britain struggled to find a balance between government intervention in the economy and an almost completely free-market economy such as existed in the United States.

The Economy of the UK

 

 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.

 

UK Economic Profile

UK’s Economic Structure

 

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.

 

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

 

The UK’s GDP makeup is comprised of agriculture (0.7 percent), Industries (21.1 percent) and services (78.2 percent).

 

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 and manufacturing on the other hand is extremely important if the UK wishes to reduce its trade deficit. 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 remain the dominant component of UK’s economy. 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.

 

 

UK Export, Import and Trade

 

The UK is the 7th leading importer and the 12th leading exporter in the world. Accordingly, the UK holds a massive trade deficit with the rest of the world, second only to the US. In 2012, UK imports were worth $646 billion with exports valued at only $481 billion.

 

In recent years, the UK has run the largest trade deficits with Norway, Germany, China, Hong Kong and Netherlands. This is mainly due to increase in demand of consumer goods, a drop in UK manufacturing and a decline in local oil and gas production. Over the past 12 months, the deficit has been flat, damping hopes that rising demand for UK goods and services will spur an economic recovery.

 

Since 2010, Britain began trying to rebalance its economy more towards exports and away from a reliance on domestic consumption after the financial crisis. But progress has been slow, despite a roughly 20 percent fall in the value of sterling since 2008.

 

 

UK’s Economic Forecast

 

In 2013, the UK’s GDP (PPP) is expected to grow to $2.391 trillion. After which, its GDP (PPP) will grow at a fairly consistent rate over the next five years. From 2014 to 2018, UK’s GDP (PPP) is expected to increase by 3.557 percent to 4.644 percent annually. By the end of 2018, UK’s GDP (PPP) is expected to reach $2.921 trillion.

 

Falling oil and food prices saw the UK’s inflation rate (average consumer price change) fall to 2.843 percent in 2012 from 4.454 percent the year earlier – though is this higher than the government target of 2 percent.

 

In 2013, the inflation rate is expected to drop further to 2.654 percent, providing some relief for households, where wages are rising far more slowly than prices. But inflation is still likely to stay above the government’s target for the next three years, bolstered by external price pressures and administered and regulated prices.  Only by 2017, is inflation (average consumer price change) expected to drop below the 2 percent mark to 1.925 percent.

The Economy of Great Britain

 

Little more than a century ago, Britain was 'the workshop of the world'. It had as many merchant ships as the rest of the world put together and it led the world in most manufacturing industries. This did not last long. By 1885 one analysis reported, "We have come to occupy a position. In which we are no longer progressing, but even falling bock. We find other nations able to compete with us to such an extent as we have never before experienced. "Early in the twentieth century Britain was overtaken economically by the United States and Germany. After two world wars and the rapid loss of its empire, Britain found it increasingly difficult to maintain its position even in Europe.

Britain struggled to find a balance between government intervention in the economy and an almost completely free-market economy such as existed in the United States. Neither system seemed to fit Britain's needs. The former seemed compromised between two different objectives: planned economic prosperity and the means of ensuring full employment, while the latter promised greater economic prosperity at the cost of poverty and unemployment for the less able in society. Neither Labour nor the Conservatives doubted the need to find a system that suited Britain's needs, but neither seemed able to break from the consensus based on Keynesian economics.

People seemed complacent about Britain's decline, reluctant to make the painful adjustments that might be necessary to reverse it. Prosperity Increased during the late 1950s and in the 1960s, diverting attention from Britain's decline relative to its main competitors. In 1973" the Conservative Prime Minister Edward Heath warned, "The alternative to expansion is not, as some occasionally seem to suppose, an England of quiet market towns linked only by steam trains puffing slowly and peacefully through green meadows. The alternative is slums, dangerous roads, old factories, cramped schools, stunted lives. "But in the years of world-wide recession, 1974-79, Britain seemed unable to improve its performance.

By the mid 1970s both Labour and Conservative economists were beginning to recognise the need to move away from Keynesian economics, based upon stimulating demand by Injecting money into the economy. But, as described in the Introduction, it was the Conservatives who decided to break with the old economic formula completely. Returning to power in 1979, they were determined to lower taxes as an incentive to individuals and businesses to Increase productivity; to leave the labour force to regulate itself either by pricing itself out of employment or by working within the amount of money employers could afford; and, finally, to limit government spending levels and use money supply (the amount of money in circulation at any one time) as a way of controlling inflation. As Prime Minister Margaret Thatcher argued in the Commons, "If our objective is to have a prosperous and expanding economy, we must recognise that high public spending, as a proportion of GNP gross national product;, very quickly kills growth... . We have to remember that governments have no money at all. Every penny they take is from the productive sector of the economy in order to transfer it to the unproductive part of it. " She had a point: between 1961 and 1975 employment outside Industry increased by over 40 per cent relative to employment in industry.

During the 1980s the Conservatives put their new ideas into practice; income tax was reduced from a basic rate of 33 per cent to 25 per cent. (For higher income groups the reduction was greater, at the top rate from S3 per cent to 40 per cent) This did not lead to any loss in revenue, since at the lower rates fewer people tried to avoid tax. At the same time, however, the government doubled Value Added Tax (VAT) on goods and services to 15 per cent.

The most notable success of 'Thatcherism' was the privatisation of previously wholly or partly government-owned enterprises. Indeed, other countries, for example Canada, France, Italy, Japan, Malaysia and West Germany, followed the British example. The government believed that privatisation would increase efficiency, reduce government borrowing, increase economic freedom, and encourage wide share ownership. By 1990 20 per cent of the adult population were share owners, a higher proportion than in any other Western industrialised country. There was no question of taking these enterprises back into public ownership, even by a Labour government.

Despite such changes, however, by 1990 Britain's economic problems seemed as difficult as ever. The government found that reducing public expenditure was far harder than expected and that by 1990 it still consumed about the same proportion of the GNP as it had ten years earlier. Inflation, temporarily controlled, rose to over 10 per cent and was only checked from rising further by high interest rates which also had the side effect of discouraging economic growth. In spite of reducing the power or the trade unions, wage demands (most notably senior management salaries) rose faster than prices, indicating that a free labour market did not necessarily solve the wages problem. By 1990 the manufacturing Industry had barely recovered from the major shrinkage in the early 1980s. It was more efficient. But in the meantime Britain's share of world trade In manufactured goods had shrunk from 8 per cent in 1979 to 6.5 per cent ten years later. Britain's balance of payments was unhealthy too. In 1985 it had enjoyed a small surplus of £3.5. Billion, but in 1990 this had changed to a deficit of £20.4 billion.

Many small businesses fail to survive, mainly as a result of poor management, but also because, compared with almost every other European Community member, Britain offers the least encouraging conditions. But such small businesses are important not only because large businesses grow from small ones, but also because over half the new jobs in Britain are created by firms employing fewer than 100 staff.

It is not as if Britain is without industrial strength. It is one of the world leaders in the production of microprocessors. Without greater investment and government encouragement it is doubtful whether Britain will hold on to its lead in this area. However, it has already led to the creation of 'hi-tech' industries in three main areas, west of London along the M4 motorway or 'Golden Corridor', the lowlands between Edinburgh and Dundee, nicknamed 'Silicon Glen', and the area between London and Cambridge. In the mid 1980s Silicon Glen was producing 70 per cent of British silicon wafers containing the microchips essential for the new information technology - The Cambridge Science Park, symbolised by its Modernist Schlumberger Building, and is the flagship of hi-tech Britain. Beginning in 1969, by 1986 the Park contained 322 hi-tech companies. In the words of a consultant, "The Cambridge phenomenon... represents one of the very few spontaneous growth centres in a national economy that has been depressed for all of a decade".

Заключение

"Great Britain lives by manufacture and trade. For every person employed in agriculture eleven people are employed in mining, manufacturing and building. The United Kingdom is one of the world’» largest exporters of manufactured goods per head of population.

The crisis of 1929-1933. brought about mass unemployment, which reached Its peak in 1932. Britain’s share in the world industrial output decreased. After the crisis production and employment increased following some revival in world trade and as a result of the extensive armament program.

 

During World War If Britain’s economy was fully employed In the war effort. Massed raids of German planes on British industrial centres caused considerable damage to Britain’s industry. World War 11 brought about a further weakening of Britain’s might. Great Britain is no longer the leading imperialist power it used to be. It has lost its colonies which used to supply it with cheap raw materials.

 

References:

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3. Banks and Banking: England // Banking. - 2009- №1. - p.26

 

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1. http://www.bankfacts.org.uk/wib/boe.htm