Economics
The UK is the world’s fourth largest economy and has weathered the recent economic downturn better than any other G8 country.
The UK Government’s economic strategy aims to improve growth and employment by creating economic stability based on low inflation and prudent government borrowing, and a better environment for long-term investment in industry, infrastructure, science and technology, and education and training.
Britain’s economy is based primarily on private enterprise which accounts for approximately four-fifths of both output and employment. Since the global recession of 1990 – 1992 the UK has experienced continuous growth and low inflation. Employment levels are the highest ever recorded.
The UK is Europe’s leading business centre and has the least restricted business environment within the EU.
The service sector accounts for about two-thirds of GDP and the UK has easily the largest financial services trade surplus in the world. London remains the largest centre in the world for international financial services business and London’s pre-eminence in Europe’s financial services industry is increasing, with international banks centralising many of their European operations in London.
Britain’s absence from the Euro has not prevented London from becoming effectively the international financial capital for the Euro; 31% of global foreign exchange trading of Euros is done in London.
The United Kingdom has a very strong economic relationship with the United States.
The UK is the largest foreign investor in the United States and the US is the largest foreign investor in the UK. Nearly 45% of UK outward investment goes to the US and 40% of overseas direct investment in the UK is from the US. Around one million Americans are employed by UK companies and the same number of British people are employed by US businesses.
UK Economy - Key Facts
17 February 2004
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HEADLINE MESSAGE · GDP growth in 2003 was 2.1%, with 0.9% growth in Q4. · The Bank of England raised interest rates to 4% on 5 February. · Unemployment fell to 4.9% - a record low. · Consumer confidence is at a 14-month high. · Trade with the US strong despite fall in the dollar. · The Budget is out on 17 March. |
Growth
· Q4 GDP rose by 0.9% (qoq), up from 0.8% in Q3 and the strongest quarter of growth since 2000Q1.
· Total growth from 2003 was 2.1%, consistent with the PBR forecast of 2.1% and the Budget forecast range of 2 - 2 ½%.
· The UK has now experienced a record 46 consecutive quarters of growth.
· The Treasury forecasts 3-3½% growth in 2004. Independent forecasters are less optimistic, predicting 2.7% growth in 2004.
Monetary Policy – rising rates
· The Bank of England raised interest rates for the second time in three months on 5 February. They increased the repo rate by a quarter point to 4%.
· Though inflation is below the 2% target, they cited above trend growth and a strong housing market as creating the need to “keep CPI inflation on track to meet the new target in the medium term.”
· The Bank is particularly concerned by the increase in house prices, warning “house prices have continued to rise at an unsustainably rapid rate” in its quarterly Inflation Report, out last week.
· UK house price inflation slowed slightly in December to 8.3% yoy, from 9.7% in December. CPI currently stands at 1.4% (January).
Labour market – record low unemployment
· The unemployment rate fell to 4.9%, the joint lowest unemployment rate since records began in 1984.
· The number of unemployed people fell by 21,000 to reach 1.46 million in November.
· The number of people claiming Job Seekers’ Allowance fell by 13,000 to 892,000 in January, the lowest level since 1975.
Households
· Average earnings rose by 3.4% in 2003, with a rise of 4.4% in the public sector and 3.2% in the private.
· Total retail sales grew by 1.9 per cent in the last three months of 2003 compared with the previous three months - the highest three-monthly growth since May 2002.
· Consumer confidence increased to a 14-month high in January, according to the GfK poll.
Manufacturing output
· Manufacturing output rose by 0.2 per cent in the fourth quarter 2003 compared with third quarter.
· However manufacturing output fell in both November and December, by 0.6% and 0.1% respectively, conflicting with survey evidence that suggests a recovery in manufacturing is in place.
Trade and the exchange rate
· The trade surplus with the US rose in 2003 to a record £6.2bn from £3.3bn in 2002. However the trade deficit with the EU widened to a record £23.8bn.
· The deficit with the EU pushed the total current account deficit to £35.8bn in 2003.
· The growing surplus with the US comes despite a large appreciation of the pound against the dollar. The pound has appreciated by 16% against the dollar since the start of 2002, and the $/£ exchange rate is currently 1.90.
· The Budget is out on 17 March
· The Chancellor says he will lower the rate of spending growth in the next spending round, due this summer.