Size and Level of Development
The United Kingdom (UK) is a country in Europe comprising of England, Scotland, Wales and Northern Ireland. The estimate of its entire population is at about 65.64 million people. The economic freedom score of the UK is at 78.0 according to the 2018 index. This score implies that the United Kingdom ranks as the 8th freest nation in the world. The country made an improvement considering that its score in the last financial year was at 62.0. The country ranks fourth out of the forty-four European countries. Its overall score according to the International Monetary Fund (IMF) is also above the global average. The Gross Domestic Product (GDP) of the UK is at 1.5%, while its consumer spending is at 1.1%. The United Kingdom's 2018 Consumer Price Index (CPI) records at 2.7%.
Moreover, the income per capita of the United Kingdom is $36,419 whereas the income distribution stands at 4.9 points. The life expectancy at birth is 76 years for males and 80 years for females. The estimate of automobile ownership in UK records at 420 persons per thousand. The UK economic growth slowed during the first half of 2017 as a result of certain factors such as the uncertainties of the Brexit vote as well as the inflation on consumer spending. The manufacturing sector of the UK is still slightly below pre-crisis peak levels and has been on the rise since the second half of the last fiscal year. Economists attribute this development to the increasing demand for UK goods, and the competitive value of the pound in the international market.
The rate of poverty in the United Kingdom is at 18%. Thus, the UK's share population is below the established risk-of-poverty line. The economic growth of the UK largely depends on the annual consumer spending. Consumer spending in the UK accounts for two-thirds of the national GDP. The 2018 projected earnings from wages to salaries are expected to rise by 0.5% because of higher inflation and softer employment growth. The income of households from gross operating profits will rise progressively as the people continue to engage in self-employment. Already, the 2018 social security have risen by 0.4% as a result of the inflation and the state's unrelenting welfare restraint for working-age benefits. Apart from that, the net property income will rise by 2.1% during the second quarter of 2018 following a decline in the previous financial year.
System of Government and Growth Performance
The United Kingdom is a mature nation with a working democratic political system where private property rights and contracts are protected. The industrial courts are impartial, proficient, and self-determining. Hence, there is a hundred percent guarantee of protection of intellectual property rights. The rule of law is well established, as well as the overall strength of the political system. The resignation of the former British Prime Minister, David Cameron, following his Brexit defeat affirms this argument. Consequently, the top personal income tax rate is 45%. However, the government reduced the top corporate tax rate to 20% at the start of 2018. The government spending accounts for 43% of the GDP. The public debt equals 89.2% of the gross domestic product. The government budget deficits average 4.4% of the nation's GDP as the overall tax burden equals 32.5% of the GDP.
The UK economic growth performance has been inconsistent during the last two years. The UK economy remained resilient in the second half of 2016 regardless of the Brexit vote to leave the European Union (Dhingra, Ottaviano, Sampson, & Reenen, 2016). However, UK experienced a slow economic growth through the second half of the 2017 fiscal year. The manufacturing sector yield has been on the rising trend since 2015 even though the process is prolonged. Nevertheless, the manufacturing productivity saw a major boost in the second half of 2017 compared to the previous years. A feat primarily attributed to the increasing demand for European exports and the competitive worth of the British Pound. The construction industry output has been unpredictable over the years. Even so, the sector witnessed some consistency in its productivity between the years 2014 and 2016. Conversely, the sector has experienced a significant decline over the last four quarters regarding its overall output. The services sector output has recorded steady growth since the end of the economic recession in the first half of 2009.
Additionally, the drivers of the UK economic growth include a complex mix of factors, but some are more easily quantified than others. In particular, the level of attracting and retaining skilled personnel is key in the development of the nation. For example, England which outperforms other UK nations stands out regarding its share of graduates. Consider the Midlands which have shown remarkable growth in the manufacturing sector. Economic analysis attributes this to the ever-increasing number of university graduates in the region (Ghatak, Silaghi, & Daly, 2009). Conversely, the West Midlands which produce a low number of graduates still lag behind concerning the overall economic growth. Entrepreneurship also contributes to the economic growth of the UK. England again stands out regarding the conception of new businesses. Other endowments include affordable housing, first-class hotel accommodations, the presence of world-class universities, as well as favorable transport systems. The position of the UK, specifically England, as a global financial and cultural center attracts world-class talent in the region.
Major Exports and Balance of Trade
The countries forming the United Kingdom shipped a total of US$445 billion worth of goods around the world in 2017.The most valuable UK export according to 2017 data was mechanical machinery generating $68 billion. The earnings account for 15.3% of the total exports. Vehicle exports came second earning the nation an amount of $53.7 billion. This value represents 12.1% of the external incomes. Mineral fuels including refined oil generated $53.6 billion. That is, 8% of all the exports. Gems and other precious metals earned the UK a total $32.8 billion (7.4%) (Barnett, Mumtaz, & Theodoridis, 2012). Similarly, pharmaceuticals, at the fifth position, generated a total of $32.8 billion like the gems and precious metals. The UK's sixth most valuable export was the electrical machinery earning the country an amount of $28.6 billion accounting for 6.4% of the total exports. Optical, technical and medical apparatus made $18.1 billion (4.1%). Other major UK exports include plastic materials ($12 billion) and organic chemicals ($10.3), both constituting 5% of the overall exports.
The United Kingdom trade deficit narrowed by 2.1 billion British Pounds (BP) in the three months to November 2017. The total gap reduced from 2.1 billion Sterling Pounds to 6.1 Sterling Pounds. The 2.1 billion Sterling Pounds narrowing of the overall trade deficit (goods and services) was as a result of the 1.2 billion Pounds narrowing of the trade in goods deficit. This narrowing was a result of an increase in the exports including vehicles, and a 0.9 billion Sterling Pounds widening of the business in services surplus because of growth in exports. Also, the narrowing of the trade in goods deficit was as a result of a 5.3% rise in the exports to non-European Union countries (Minford, 2016). Additionally, a 1.9% proliferation in goods export volumes impacted the narrowing of the trade in goods deficit, as compared to the prices, in the three months to November 2017. The downward revisions to goods exports by 1.4 billion British Pounds in October 2017 was primarily because of the downward revisions to unspecified goods and fuels.
Major Trading Partners and Membership in Trade Organizations
In the year 2017, approximately 54.4% of the UK exports were sold to other European trade partners whereas 22.6% were delivered to Asia. Apart from that, the UK shipped 15% of its total exports to North America. About 2.5% were delivered to Africa, and about 1.6% to Australia and New Zealand. The Latin America excluding Mexico but including the Caribbean constituted about 1.4% of the UK exports. To the country level, the primary importer of UK goods was the United States accounting for approximately 13.1% of total UK exports. Others included Germany (10.5%), France (7.4%), Netherlands (6.2%), Ireland (5.7%), China (4.8%), and Switzerland (4.5%) (Roberts, Ove Arup, & Partners, 2014). Other nations like the Belgium, Italy, Spain, and Hong Kong account for about 14.3% of the UK exports.
That said, the United Kingdom participates in the free trade arrangements of the European Union (EU) and the European Free Trade Association (EFTA) and is also a member of the World Trade Organization (WTO). Another arrangement in which the UK participates is the US-UK Defense Trade Cooperation Treaty. Another agreement is that known as the ASEAN treaty. This treaty allows the UK to trade with Sri Lanka, Malaysia, and Thailand. The UK is also a member of the Commonwealth. Thus, it participates in various trading activities with the members of the organization like Australia and New Zealand.
Overall Assessment of UK's Economic Performance
The UK is a business-friendly country with proper regulations that are favorable to trade activities. In March 2017, the region recorded the highest employment-to-population ratio since 1791. Also, the UK produces highly-skilled graduates from world-class universities whose expertise are essential in the manufacturing sector. Conversely, the country has not done much to sustain its GDP. The GDP eased to 1.5 percent in 2017 leading to the holding back of the private consumption growth. Also, the job creation is losing impetus, and the rate of unemployment remains at 4.3%. Still, there are remedies to these shortcomings. For example, the UK should adopt caps on debt-to-income ratios for various debts. Also, choosing an affordable and reliable test to assess the household share budget projections will help to revive the country's economy. Lastly, the UK should deal with the issue of Brexit as soon as possible since it causes an economic scare.
Barnett, A., Mumtaz, H., & Theodoridis, K. (2012). Forecasting UK GDP growth, inflation and interest rates under structural change: A comparison of models with time-varying parameters. London: Bank of England.
Dhingra, S., Ottaviano, G. I., Sampson, T., & Reenen, J. V. (2016). The consequences of Brexit for UK trade and living standards.
Ghatak, S., Silaghi, M. I. P., & Daly, V. (2009). Trade and migration flows between some CEE countries and the UK. The Journal of International Trade & Economic Development, 18(1), 61-78.
Minford, P. (2016). Understanding UK trade agreements with the EU and other countries (No. E2016/1). Cardiff Economics Working Papers.
Roberts, S. H., & Ove Arup & Partners,. (2014). Have you wondered what GDP means?: An introduction to diagrams of the UK economy using Arup's 7see model.
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