UK Market
The UK Economy at a Glance
1. OVERVIEW OF THE UK ECONOMY
The UK is the fifth largest economy in the world, with a gross domestic product (GDP) of US$2,345 billion (Source: World Bank, 2007). The UK is forecast to have the strongest business environment of all major European economies for the period from 2008 to 2012 (Source: EIU, 2007).
In summary, the UK:
- has a population of 60.6 million (Source: ONS, 2007),
- was the second largest recipient of foreign direct investment (FDI) globally in 2007 (Source: UNCTAD, 2008),
- is a leading global trading nation, being the second largest exporter and third largest importer of commercial services, and the seventh largest exporter and fourth largest importer of merchandise (Source: World Trade Organization, 2007),
- is a member of the European Union, the world’s largest trading entity, with nearly 500 million consumers and a GDP of approximately US$19,000 billion (Source: Eurostat, 2008),
- is one of the most competitive locations in Europe for business and personal taxation,
- has low unemployment (with an unemployment rate well below the European Union average), and
- has the best European city – London – in which to do business (Source: Healey & Baker, European Cities Monitor, October 2007).
2. ECONOMIC GROWTH
Economic growth in the UK was 3.1 per cent in 2007 (Source: HM Treasury, 2008). Over the last ten years GDP growth in the UK has regularly outpaced growth in the European Union (see Figure 1).
3. EXCHANGE RATES
The UK Government has policies that encourage a stable and competitive pound, consistent with the objective of price stability (for example, the Government is committed to holding a referendum on the euro once it decides economic conditions are right for the UK to join).
For detailed information on the latest exchange rates please see: www.uktradeinfo.com/index.cfm?task=exchange
4. INTEREST RATES
The official Bank Rate in the UK, set independently by the Bank of England, is 5.25% as of March 2008 (although the rate is subject to review on a monthly basis. For the latest rate, please see: www.bankofengland.co.uk/).
For more information please see the Bank of England: www.bankofengland.co.uk
5. INFLATION
The Bank of England has full operational independence in setting interest rates to meet the Government’s inflation target of 2 per cent for the 12-month increase in the Consumer Price Index (CPI). These arrangements remove the risk that short-term political factors could influence monetary policy and ensure that interest rates are set in a forward-looking manner. The CPI is based on the internationally comparable ‘‘Harmonised Index of Consumer Prices’’. In March 2008 the CPI stood at 2.5 per cent.
For more information please see the Bank of England: www.bankofengland.co.uk
6. FOREIGN DIRECT INVESTMENT
The UK has a very strong track record in attracting foreign investment. In 2007, the country attracted the second highest amount of foreign investment globally, receiving US$171.1 billion of FDI inflows, representing 26 per cent of all FDI inflows into the European Union (Source: UNCTAD, 2008).
The UK is also predicted to attract the second highest level of FDI globally between 2007 and 2011 (EIU, 2007).
In 2007, the cumulative ‘‘stock’’ of foreign investment in the UK was more than US$1,280 billion, the second highest level of FDI stock globally, behind only the US (Source: ONS, 2007; UNCTAD, 2007).
The UK is the largest single destination globally for US investment and in 2006 accounted for 32.4 per cent of all US investment stock in the European Union. Indeed, the UK has attracted more US FDI than the combined totals of Germany, France, Spain, Italy and Ireland (Source: US Department of Commerce, 2007).
The UK also has a strong track record for outward investment, and is predicted to be the second largest outward investor globally between 2007 and 2010 (Source: EIU, 2007).
7. TRADE
The UK is one of the leading trading nations in the world. It is the second largest exporter and third largest importer of commercial services, and the seventh largest exporter and fourth largest importer of merchandise (Source: World Trade Organization, 2007).
Leading destinations for UK products and services include the US (16 per cent of all exports), Germany (9.9 per cent) and France (9.7 per cent). Exports of goods and services to the European Union as a whole accounted for around 55 per cent of all UK exports (Source: ONS, The Pink Book, 2007).
8. TAXATION
The UK has a relatively lightly taxed economy, with the overall tax burden well below the average for the European Union and, in particular, countries such as France, Spain, Belgium, Sweden, Denmark and Italy.
The main corporation tax rate in the UK, at 28 per cent, is lower than in other major European economies. The UK also has one of the lowest standard rates of VAT in the European Union and, unlike many other European countries, does not impose VAT on a wide range of essential goods, including food and children's clothing.
9. MAJOR UK-OWNED COMPANIES
A substantial proportion of the world’s leading companies are UK-owned. The “Financial Times Global 500” survey (www.ft.com/ft500), which identifies the largest 500 global companies by market value, calculates that UK companies comprise the third highest number of the world’s largest companies, behind only the US and Japan. Major UK companies in the list include BP, Vodafone, GlaxoSmithKline, HSBC, the Royal Bank of Scotland, Barclays, AstraZeneca, Tesco and Diageo. The major UK companies account for the second highest market capitalisation in the world, only bettered by the US.
10. LABOUR ENVIRONMENT
The UK has a highly skilled, flexible and dynamic labour market, with less labour regulation than most other European countries.
Employment is currently at record levels with over 29.46 million people in work, comprising 21.9 million in full-time work and 7.56 million in part-time work (Source: ONS, 2008). The employment level (the proportion of working age people in work) is also high in the UK at 74.8 per cent, compared with the European Union average of 66 per cent (Source: ONS, 2007).
The UK’s unemployment rate (using the internationally comparable “standardised” rate) of 5.1 per cent is significantly lower than the European Union average of 6.8 per cent (Source: ONS, 2008).
The annual rate of growth of average earnings across the UK economy stood at 3.7 per cent in January 2008 (Source: ONS, March 2008).