The U.K. Economy“The sun never sets on the British Empire"

Presented by W.A Senathissa

The sun never sets on the British Empire

The evolution of U.K. Economy

• Dominant empire in the world integrated as one country, one nation and one language.

• The British economy encompasses the economies of England, Scotland, Wales and Northern Ireland.

• Britain was the first country to start the industrial revolution in the 18th century. Britain is a capitalist country.

• Increasing economic challenge from USA and Germany through the 02nd Industrial Revolution

England, Great Britain and UK

• England: 50,338sq km-Two times as SL• Great Britain =England + (Wales +Scotland).• UK= Great Britain + North Ireland. (In 1801)• Expansion of the UK– In 1800: 94251sq km– In 1940: 160,000,000sq kmCotton → Steam engine →Coal /mining →Steel/ Machinery

Trade vs God• Resorted trade than the god • The major sources of wealth & income was trade .• God with the ten act allowed to earn 5 % interest

rate any investment. • Believed, The precept of buying low cost and selling

high price followed to earning profit.• Worship bank in first six days, but on 07th day of

the week they resort church.• Only the country, used national flag for

advertisement & trade promoting in the world

Monarchy empire

• Resource allocation basically done by the letters of monarchy dealers.

• There was no any General Election until by 1929.

• The first general election in 1929 trough majority vote system.

Salient features of UK economy

• The 07th largest national economy in the world measured by nominal GDP $2.480 tn (2011)

• 08th largest economy measured by purchasing power parity (PPP) $2.253 tn (2011).

• GDP percapita: $39,600 (2011)(nom; 20th) $36,000 (2011) (PPP; 17th)

• The 03rd largest in Europe measured by GDPn– after Germany and France – Second-largest measured by PPP after Germany

GDP Contribution by sector

GDP by sector Agriculture: 0.7% Industry: 21.5% Services: 77.8% (2011)

Inflation: CPI:2.7% (November 2012)

Gini coefficient 0.36 (2008)Labour force 31.72 million (2011 est.)

Average Gross Salary €4,108 / $5,546, monthly (2006)

A Brief Introduction to U.K. Economy

• End of the II World War, the UK enjoyed a long period without a major recession (from 1945 to 1973) and a rapid growth in prosperity in the 1950s and 1960s.

• The annual rate of growth (percentage change) between 1960 and 1973 averaged 2.9%, – figure was far behind the rates of other European

countries such as France, West Germany and Italy.

Recession condition

• Severe shock of the 1973 oil crisis and the 1973–1974 stock market crash, the British economy had fallen into recession.

• Double-digit inflation and rising unemployment.• Strictly public spending cuts as a condition to

the rescue package of IMF £2.3bn loan.• Soon enough, in 1979 the government fell

Neo-liberal economics

• A new period of neo-liberal economics began in 1979 with the election of Margaret Thatcher

• During the 1980s most state-owned enterprises were privatised

• Taxes cut and markets deregulated. • GDP fell 5.9% at first but growth rose to 5% at

its peak in 1988– one of the highest rates of any European nation

Battle against inflation resulted in mass unemployment

• the jobless count passing 3,000,000 by the start of 1982 compared to 1,500,000 in 1979.– This was in part due to the closure(closing) of

outdated factories and coal pits which were no longer economically viable.

• Another recession during the second half of 1990– concurrent with a global recession, and caused

the economy to shrink by a total of 8% from peak

Severe Unemployment

• Unemployment to increase from around 1,600,000 to nearly 3,000,000 by early 1993

• Recovery saw a rapid and substantial fall in unemployment, which was down to 1,700,000 by 1997.

The Labour Party, led by Tony Blair

• Returned to power in May 1997 after 18 years in opposition

• successive decades of economic growth, lasting until the second quarter of 2008

• Rapid increasement og GDP growth Contributed by finance sector growth.

• This extended period of growth ended in 2008 when the UK suddenly entered a recession

The roots of the USA Financial Crisis

• Beginning with the collapse of Northern Rock, which was taken into public ownership in February 2008

• The Royal Bank of Scotland Group: 05th largest in the world by market capitalization, was nationalised on 13 October 2008.

• Unemployment rise from just over 1,600,000 in January 2008 to nearly 2,500,000 in October 2009

GDP and Foreign Trade

Agriculture productscereals, oilseed, potatoes, vegetables; cattle, sheep, poultry; fish

Exported commodities

manufactured goods, fuels, chemicals; food, beverages , tobacco

Imported commodities

manufactured goods, machinery, fuels; foodstuffs

Year 1925 1950 1975 2000 2011

GDP 4,466 13,162 105,773 953,576 $2.480 tn

Trading Nation

• Britain is a trading nation. (Why?)

In Britain, the domestic market is limited. So, it has to find more markets outside the country. It has to find more markets in the world.

• Eg. Each year Britain exports some one-third of its gross domestic product. It is the fourth largest exporter in the world. Its exports account for about 5% of the world’s total trade volume.

Poverty condition in USA• The United Kingdom is a developed country

with social welfare infrastructure, thus discussions surrounding poverty tend to be of relative poverty.

• According to the OECD, the UK is in the lower half of developed country rankings for poverty rates, doing better than Germany, Italy and the US

• But less well than France, Austria, Hungary, Slovakia and the Scandinavian countries

Poverty cont’d

• The poverty line in the UK was calculated to be £115 per week for single adults with no dependent children by 2007

• £199 per week for couples with no dependent children

• £195 per week for single adults with two dependent children under 14

• £279 per week for couples with two dependent children under 14

High living cost and shrinking family size

• In 2007–2008, 13.5 million people, or 22% of the population, lived below this line.

• This is a higher level of relative poverty than all but four other EU members.

• In the same year, 4.0 million children, 31% of the total, lived in households below the poverty line, after housing costs were taken into account. This is a decrease of 400,000 children since 1998–1999.

Industrial background• The aerospace industry of the UK is the 03rd -

largest national aerospace industry• The pharmaceutical industry plays an

important role– The third-highest share of global pharmaceutical

R&D expenditures (after the United States and Japan).

The British economy is boosted by North Sea oil and gas reserves

Government income

• UK government introduced indirect taxes rather than direct taxes to the public

Absolute Decline

• Britain was the first country in the world to start the industrial revolution. It took the lead in the development of economy in the world in the 19th century. But by 1900, it was overtaken by both the US and Germany.

• In the Post-war period, the U.K. economy experienced boom and bust (the fluctuation of U.K. economy).

Absolute Decline

• The reasons of the economic decline: • 1) Being in debt;• 2) The end of the empire;• 3) Large military spending;• 4) A catching-up by Germany and Japan;• 5) Lack of a close relationship between

industry and banks.

Absolute Decline

• A Characteristic of the UK economy----A low rate of domestic industrial investment coupled with a very high rate of overseas investment.

The resent history of UK

Recent History

• Britain’s slow growth of productivity, soaring inflation, and large unemployment gave birth to the mocking term “British Disease”.

• In 1979, Margaret Thatcher became Britain’s first-ever woman Prime Minister. She carried out an extensive program of privatization. The new doctrine advocated reduction of taxes so as to stimulate investment and consumption.

Recent History

• Thatcher’s economic policy achieved remarkable success:

1) Inflation fell to about 4 percent. 2) Britain achieved an average 3 percent

increase in its economic growth. 3) The worker’s take-home pay increased by 20

percent. 4) Profitability of industrial companies was high.

Recent History

• Thatcher’s policy was like a coin with two sides: 1) High Unemployment; 2) Widened gap between the poor and the rich; 3) High crime rates; 4) Unsatisfactory social services.

Recent History IMF

• The IMF (International Monetary Fund) is an international organization of 185 member countries.

• It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment.

Recent History IMF

• Since the IMF was established its purposes have remained unchanged but its operations—which involve surveillance, financial assistance, and technical assistance—have developed to meet the changing needs of its member countries in an evolving world economy.

The Current U.K. Economy

• Division of the economic sectors:• 1. primary industry• 2. secondary industry• 3. tertiary industries/service industry

Case Study: The Aerospace

• Aerospace industry• Large companies

• “Big Four”• Lloyds• Barclays• Midland• The National Westminster Bank Group