United Kingdom - Overview of economy

During the 16th and 17th centuries, Great Britain became one of the world's foremost trading nations. The kingdom established colonies in India, Asia, the Caribbean, and North America. These colonies supplied raw materials to Great Britain, which then turned those resources into manufactured goods. These goods were then exported to markets in the colonies and around the world. As a result of this trading system, the United Kingdom was one of the first nations in the world to undergo an industrial revolution (a period of rapid industrial growth and a corresponding decline in agriculture). By the 1800s, the British industrial sector was the largest in the world. Economic expansion in Great Britain was fueled by the kingdom's empire, which at its height included one-quarter of the world's territory and almost one-third of its population. By 1900, rival economic powers such as Germany and the United States began to challenge British commercial advantages. The effects of World War I and World War II and the subsequent period of de-colonization in the 1950s and 1960s led to an erosion of British economic superiority. After decades of economic decline, the British economy began to rebound in the 1980s.

The British economy is currently one of the largest and most diversified in the world. In 1999, its GDP ranked seventh in the world. Its GDP per capita was US$21,800, which ranked twentieth in the world. When foreign investments are included, the British economy is the fourth-largest in the world and the second-largest in Europe. Its capital, London, ranks alongside New York as one of the globe's main financial centers. As such, the kingdom is one of the world's leading trading nations. The United Kingdom is also home to some of the largest international companies, including the oil company BP-Amoco (worth US$116 billion), British Telecommunications (US$92.58 billion), the telecommunications company Vodafone Airtouch (US$91.68 billion), HSBC Bank (US$69.56 billion) and the pharmaceutical company Glaxo Wellcome (US$61.53 billion). In addition to its economic advantages, the country has a variety of natural resources including oil, natural gas, coal, tin, limestone, iron ore, salt, clay, chalk, gypsum, lead, and silicia.

The robustness of the British economy has led to considerable foreign investment and prompted many foreign companies to relocate to the kingdom. It has also led a number of large multinational companies to merge with or acquire British companies. In 2000, there were 560 international mergers and acquisitions in the United Kingdom. These had a value of US$86 billion and represented 42 percent of all multinational mergers and acquisitions in the European Union (EU).

The British economy has experienced a period of prolonged growth since the early 1990s. For instance, from 1995 to 1999 the economy of the United Kingdom grew by a total of 10.6 percent. Growth rates have averaged more than 2.7 percent per year. GDP per capita increased during this period from US$18,714 to US$21,800. In 2000, the economy grew by 2.8 percent, although the economic slowdown in the United States has produced a slower rate of growth than economic analysts predicted. The subsequent economic recovery of the country has not proceeded evenly. Most of the recent growth has occurred in southern England. Areas of Scotland and Wales remain economically depressed, as does the region of Northern Ireland. While the United Kingdom as a whole receives significant amounts of foreign investment, religious strife in Northern Ireland has led most foreign firms to avoid the area. That region consequently has the highest unemployment rate in the United Kingdom.

Like many of the world's leading economies, the United Kingdom's economy is marked by a growing service sector and a declining industrial base. The kingdom is one of the few nations in the world that has the capability to compete with the United States in some of the leading high-tech sectors, including e-commerce (business and services bought and sold through the Internet) and telecommunications. The United Kingdom is also home to some of the world's largest banking and financial service firms. Agriculture in the United Kingdom remains a strong, but small component of the economy. British farmers are among the most productive in Europe, but recent problems with hoof and mouth disease and mad-cow disease have caused widespread declines in agricultural production. While the industrial sector is declining in relation to other areas, it is a diversified and productive component of the kingdom's economy. For instance, British Steel is the largest steel manufacturer in Europe and the third-largest producer in the world. Other major industries include aerospace, chemicals, clothing, communications equipment, the production of machine tools and electric power tools, railroad equipment, shipbuilding, textiles, and paper and paper products. The most productive industry in the United Kingdom is the energy sector, which contributes 10 percent of the kingdom's GDP. The British produce coal, natural gas, and oil for both domestic use and export.

The British economy has 3 major problems that may limit future growth and long-term stability. First, British workers do not have the same levels of productivity as their American, European, or Japanese counterparts. This means that during a given period of time, British workers produce less of a product than workers in these other markets. Reasons for this include lower education rates for the British and less investment in new technology and manufacturing methods. Currently, wages are lower in the United Kingdom than these other areas. In addition to preventing inflation , the lower wages also continue to attract foreign investment, since investors pay less for labor. Second, the aging population will lead to a shortage of new workers beginning in the next decade. Immigration will alleviate some of this problem. However, the aging population's additional tax burden on the social security and health system will require increases in taxes or other government revenues. Third, and finally, the nation has had a trade deficit for some time. On average, the kingdom's trade deficit is 1.5 percent of GDP. In 1998, the trade deficit totaled US$35 billion. The strength of the British currency in relation to the euro (the new currency of the European Union) and the money of other nations has meant that imports into the kingdom are relatively inexpensive, while British exports are expensive.

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