Unit 5 The UK Economy

Focal points Absolute decline and relative decline Recent history The current UK economy The UK Economy in 2009 UK Economic Forecast

Absolute Decline and Relative Decline By the 1880s, the British economy was dominant in the world, producing one third of the world’s manufactured goods, half its coal and iron, and half its cotton. But by 1900, the UK has been overtaken by both the United States and Germany.

the Second Industrial Revolution in the United States meant the US had begun to challenge Britain's role as the leader of the global economy. The extensive war efforts of both World Wars in the 20th century and the dismantlement of the British Empire also weakened the UK economy in global terms, and by that time Britain had been superseded by the United States as the chief player in the global economy.

From 1945 until the present, the story of the UK economy is usually thought of as one of decline. Question: Is this statement true? What are the reasons for describing this period as one of decline?

The Reasons for the Relative Decline of UK Economy First: After World War II, the UK had gone heavily into debt in order to finance the war, selling many of its accumulated overseas assets, and borrowing large amounts from the US and Canada. Second, the era of empire was over. the independence of its colonies makes Britain lose big markets for British goods, and the independent colonies stopped providing raw materials to the UK, leaving Britain as just a medium-size European country.

Third, Britain spent a higher proportion of national wealth on the military than most of its competitors. (decolonization, a member of NATO, a member of the UN Security Council.) Fourth, its industry survived almost unaffected during the war so that British could continued with its older factories and pre-war products.

Fifth, the lack of a close relationship between industry and banks in the UK is not as close as that of Japan and Germany, and the rates of investment was low.

Facts showing the UK Economy’s Relative Decline Britain is a lot more wealthier and more productive than it was in 1945; however, other countries have improved more rapidly, and the UK slide from being the 2nd largest economies to being the 6th.

２００７世界主要经济体ＧＤＰ排名 Rank order country GDP GDP (per capita ) growth rate 01 USA 137532.87亿美元 45668美元 2.2% 02 JAPAN 51034.63亿美元 40055美元 2.0% 03 GERMANY 30243.34亿美元 36698美元 2.6% 04 CHINA 28792.26亿美元 2177美元 11.4% 05 UK 24718.72亿美元 40669美元 2.9% 35 HONG KONG 2045.02亿美元 29298美元 5.8% 　　　　 (CIA statistics, Feb. 12, 2008）

Recent History The British economy went through a particular bad period in the 1970s. following the severe shock of the 1973 oil crisis and the 1973–1974 stock market crash, the British economy went into recession in 1974, with GDP falling by 1.1%, recording weaker growth than other European nations in the 1970s overall.

Results: Workers struck for more pay. The government was in debt. The British industry appeared to be doing badly, with increasing imports relative to exports.

Solution: a change of government In 1979, the British people voted in the Conservative Party under Margaret Thatcher, with the promise of a radical program of reform. Question: 1. What reform did her government carry out? 2. Was the reform successful?

Positive consequences: The inflation was under control. Companies were more efficient, being able to pay higher wages and make higher profits. Negative consequences: A rapid increase in unemployment The public services became worse. The national economy as a whole continued to grow at lower rates than its competitors.

A general picture of the UK Economy Primary industries: agriculture, fishing, and mining. Secondary industries: manufacturing Tertiary industries: services, such as banking, insurance, tourism, and the selling of goods.

Primary Industries in the UK Agriculture is intensive, highly mechanised, and efficient by European standards, producing about 60% of food needs with less than 2% of the labour force 3rd quarter of 2007. It contributes around 2% of GDP. Around two-thirds of the production is devoted to livestock, one-third to arable crops. Three quarters of Britain’s land is used for agriculture, with about a quarter of that under crops, and the rest is grazing for animals.

Energy production accounts for 5% of the national wealth. Since 1970s, when oil and gas were discovered under the North Sea, Britain has become a major oil and gas producer.

The abundance of energy resources make the UK become an overall exporter of energy. Three of the biggest ten companies in Britain are in the energy sector: Shell British Petroleum British Gas

North Sea oil and gas supply most of the UK's energy needs.

Secondary Industries of the UK In 2003, manufacturing industry accounted for 16% of national output in the UK and for 13% of employment, according to the Office for National Statistics. This is a continuation of the steady decline in the importance of this sector to the British economy since the 1960s, although the sector is still important for overseas trade, accounting for 83% of exports in 2003.

Britain’s companies are active in all major fields of Manufacturing industry, but are particular strong in pharmaceuticals, chemicals, aerospace, and food and drink. Britain’s electronics industry is the fourth largest in the world, but in many cases foreign-owned.

Tertiary Industries of the UK The importance of secondary industry has shrunk, while the importance of service industry grows. 70% of the UK’s workforce are employed in the service sector. The UK service sector now makes up about 73% of GDP. The service sector is dominated by financial services, especially in banking and insurance.

London is the world‘s largest financial centre with the London Stock Exchange, the London International Financial Futures and Options(期货交易) Exchange, and the Lloyd's of London insurance market all based in the City of London. London has the largest concentration of foreign bank branches in the world， with HSBC and Barclays Bank relocating their head offices there.

The Bank of England; the central bank of the United Kingdom.

Tourism is very important to the British economy Tourism is very important to the British economy. With over 27 million tourists arriving in 2004, the United Kingdom is ranked as the sixth major tourist destination in the world. London is the most visited city in the world with 15.6 million visitors in 2006, ahead of 2nd placed Bangkok (10.4 million visitors) and 3rd placed Paris (9.7 million).

the UK Economy in 2009 The UK entered a recession in Q3 of 2008. As of the end of September 2009, the economy had shrunk by 5.9%, making the 2008-2009 recession the longest since records began. There was a 2.4% decline in the first quarter of 2009. GDP decreased by 0.4 % in the third quarter of 2009, after a decrease of 0.6 % in the second quarter, according to the October 2009 figures from the Office for National Statistics (ONS).

By the end of 2009, the UK economy is expected to have contracted 3 By the end of 2009, the UK economy is expected to have contracted 3.2 per cent (although some economists are revising that figure downwards), with the UK budget deficit ballooning 11.3 per cent of GDP, from 5.3 per cent, and British national public debt expanding to 59 per cent of GDP.

Inflation is no longer a concern thanks to the collapse in energy and commodity prices. It is expected to be around 0.5 per cent this year. Indeed many argue that deflation is now a bigger concern. As such, the Bank of England is expected to cut Interest Rates.

UK Economic Forecast--- UK Economy 2010 Forecasting the UK economy in 2010 in the midst of such economic uncertainty and financial upheaval is, to put it mildly, a challenge. The consensus for 2010 has now shifted to flat to negative growth, with the Economist forecasting 1.1 per cent drop in GDP.

Forecasters are projecting a rise in unemployment to 2 Forecasters are projecting a rise in unemployment to 2.5m – 3m workers, or 8-10 % of the labour force, and stabilisation of housing market only some time in the second half of the year.