5 Things You Need to Know About the UK Economy
The economy of the UK has faced tumultuous times, even more so since the 2016 Brexit referendum. And yet, the nation continues to be viewed as one of the top 10 economies in the world, by GDP growth.
To understand how the UK economy has grown over the years, here are 5 key things you need to know about it.
1. London is the world’s most important foreign exchange trading centre
London has been the most dominant player in the currency market for the past fifty years or so. Ever since the historic Brexit referendum in 2016, Britain has gained significant ground in the global currency trading business. London is likely to remain one of the world’s top two financial centres, even after Brexit.
An analysis based on surveys released by central banks of the five largest trading centres of the world shows that currency trading volumes increased 23% to reach a record daily average of £2.1 trillion or $2.7 trillion in April 2017, from the April 2016 levels. This means that around two-fifths of all the trades were handled in Britain, and almost all of them in London. This daily volume is roughly equivalent to the yearly economic output of the UK.
It is noteworthy that the UK’s currency market is growing at double the pace of its rival, the United States, which is growing at 11%.
The reasons for the UK’s prolonged dominance of the currency market can be attributed to a number of factors, such as:
- London is placed right between the time zones, so its market opens before the US markets and after the Asian markets.
- English might not be the most commonly spoken language globally, but in terms of finance, it holds great significance.
- Despite all the criticism that the Financial Conduct Authority (FCA) faces, it is one of the most flexible and responsible regulators, in terms of the changes made to regulations. The FCA strives to achieve a balance between consumers and businesses.
- London’s high-tech FX trading hardware, and the high-speed sub-Atlantic cables to New York make it very expensive and difficult for forex operations to be moved to another location. This is extremely useful, given that banks have a tendency to group together.
2. UK’s services sector contributes around 80% of the GDP
The services sector in the UK is the largest component of the nation’s economy and accounts for about 80% of the GDP, as well as 80% of the country’s employment.
In 2013, 79% of the UK’s Gross Domestic Product came from this sector. This is a significant increase from 1948, when the services sector contributed 46% to the GDP. Over time, the share of the GDP contributed by agriculture and production has decreased, while that from construction has more or less stayed constant.
The estimates given by the Office for National Statistics, based on more than 23,000 companies, shows that the output of the services sector increased at a strong 0.4% in July 2016, as compared to June 2016.
The main segments of the UK’s services sector include:
- Insurance services
- Postal services
- Banking services
- Restaurants and cafés
- Pension services
- Retail industry
- Transport by rail, air, bus, and sea
- Computer and IT services
- Food and beverage services
- Hotels and tourism services
3. The UK has the 4th highest employment rate in the world
The United Kingdom ranks 4th in terms of employment, after Iceland, Switzerland and Sweden. The employment rate as of February 2019 was 76.10%, while the average employment rate between 1971 and 2019 stood at 71.25%. It reached a record high of 76.10% in December 2018 and a record low of 65.6% in March 1983. The jobless rate (around 4%) is the lowest since early 1975.
The number of people employed in the country has continued to increase, with a staggering 32.6 million employed between October 2018 and December 2018, according to the latest statistics from the Office of National Statistics. In 2017, 1.11% of the workforce was employed in the agriculture sector, 82.53% in the services sector and 18.36% in the manufacturing sector.
4. Great Britain is home to some of the largest brands
At the start of 2017, there were about 3.4 million sole proprietorships in the UK, 1.9 million limited companies and 414,000 partnerships. Around 990,000 of the active limited companies were employers, while 891,000 were not.
But among all these, special mention goes to the biggest brands that have emerged out of the UK. Two of the most successful brands to emerge from the nation are:
Also known as Royal Dutch Shell, this is one of the biggest companies in the country. It handles operations related to exploration, production, transport, distribution, marketing and trading of oil and gas. As of 2019, Shell operates in more than 70 countries, has interests in 21 refineries and has 90,000 employees. Shell is also the largest UK company involved in environmental activities, such as finding natural climate solutions.
Unilever is one of the most successful companies in the UK, with revenue of €50.982 billion. It offers a wide range of products that are used all over the world, such as Sunsilk, Dove, Axe, Omo, Lipton and Magnum. The company is involved in the production and distribution of consumer goods, ranging from food and beverages to personal care and beauty products.
5. The EU is an important trade partner for the UK
The EU, as a whole, is the UK’s largest trading partner. In 2017, the nation’s exports to the EU stood at £274 billion, while imports from the EU totalled £341 billion.
Services formed 40% of the total exports of the UK to the EU in 2017. Other important categories, such as accounting, research and development, architectural, legal, engineering and financial services, formed 52% of the UK’s services exports to the EU.
Wales, followed by North East of England, were the two places that saw the highest percentage of exports to the EU of all the countries in 2017. East of England and Northern Ireland received the joint highest amount of imports from the EU.
With Brexit at a crucial juncture, it is now a waiting game to see whether the balance of the UK economy changes following the nation’s departure from the EU.