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UK Economy

(information provided by UK Trade and Investment - www.ukinvest.gov.uk)

In 2006, the UK economy was the fifth largest in the world, with a gross domestic product (GDP) of US$2,227 billion (5% of the world total), and the UK is forecast to have the strongest business environment of all major European economies for the period from 2005 to 2009 (Source: EIU, 2005).

In summary, the UK:

For more information please see:

Economic growth

Economic growth in the UK was 1.8 per cent in 2005 (Source: ONS, 2006) and is forecast to increase to 2.2 per cent in 2006 and 2.5 per cent in 2007 (Source: HM Treasury, 2006). Over the last ten years GDP growth in the UK has consistently outpaced growth in the European Union (see Figure 1 in PDF).

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

Interest rates

Long-term interest rates in the UK are currently 5.25 per cent and are at their lowest levels since the 1960s.

For more information please see the Bank of England: www.bankofengland.co.uk

Inflation

Inflation within the UK is below the OECD and European Union averages and is expected by most major forecasting organisations to remain low. The UK is currently experiencing the longest period of sustained low inflation since the 1960s.

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 January 2006 the CPI stood at 1.9 per cent, with the Bank of England forecasting that this rate will remain around 2 per cent during 2006.

For more information please see the Bank of England: www.bankofengland.co.uk

Foreign direct investment

The UK has a very strong track record in attracting foreign investment. In 2005 the country attracted the highest amount of foreign investment globally, receiving US$219 billion of FDI inflows, representing 24.4 per cent of all global FDI inflows (the UK accounted for 49 per cent of all FDI into European Union countries and had the highest level of FDI ever recorded in a European country).

In 2004 the cumulative ‘‘stock'' of foreign investment in the UK was more than US$770 billion, the second highest level of FDI stock globally, behind only the USA (Source: World Investment Report, 2005).

The UK is the largest single destination globally for US investment and in 2005 attracted 28 per cent of all US investment into 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, 2005).

The UK also has a strong track record for outward investment, and is predicted to be the second largest outward investor globally during 2006 (Source: World Investment Prospects, 2004).

Trade

Leading destinations for UK products and services include the USA (15 per cent of all exports), Germany (11.6 per cent) and France (9.8 per cent). Exports to the European Union as a whole accounted for around 58 per cent of all UK exports (Source: ONS, The Pink Book, 2005).

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 Germany, France, Sweden, Denmark and Italy.

The main corporation tax rate in the UK, at 30 per cent, is lower than in any other major European economy. 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.

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 USA 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 USA.

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 more than 28.7 million people in work, comprising 21.4 million in full-time work and 7.3 million in part-time work (Source: ONS, February 2006). The employment level (the proportion of working age people in work) is also high in the UK at 74.5 per cent, compared with the European Union average of 64 per cent (Source: ONS, February 2006).

The UK's unemployment rate (using the internationally comparable “standardised” rate) of 4.9 per cent is significantly lower than the European Union average of 8.4 per cent (Source: ONS, February 2006).

The annual rate of growth of average earnings across the UK economy stood at 3.6 per cent in December 2005 (Source: ONS, February 2006).

The UK is renowned for its skills base, with many world-class universities and centres of research and development located across the country. London is consistently ranked as the leading European location for availability of qualified staff (Source: Healey & Baker, European Cities Monitor, 2005).

The government department in the UK with responsibility for the economy is HM Treasury. For further information, please see: www.hm-treasury.gov.uk
 

Further Information

This information sheet was updated in March 2006.

As information changes from time to time, please contact the organisations listed or UK Trade & Investment to confirm any item that you intend to rely on.

This information sheet was produced by the Marketing and Communications Team of:

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