With a gross domestic product (GDP) of $2.83 trillion in 2019 and a population of more than 66 million, the United Kingdom has the sixth-largest economy after the U.S., China, Japan, Germany, and India. The U.K. is made up of England, Scotland, Wales, and Northern Ireland. Its quality of life is generally considered high, and the economy is quite diversified. The sectors that contribute most to the U.K.'s GDP are services, manufacturing, construction, and tourism. It has unique laws like the free asset ratio.
- With a 2019 gross domestic product (GDP) of $2.83 trillion, the United Kingdom has the sixth-largest economy in the world.
- The services sector—which comprises many industries including finance, retail, and entertainment—accounts for more than three-quarters of the U.K.'s GDP, while manufacturing and production account for less than 21%.
- The European Union is the U.K.'s largest single trading partner, accounting for about 43.5% of exports in 2019.
Sectors That Contribute to the Economy
According to the U.K. Office for National Statistics (ONS), the services sector is the largest sector in the U.K., accounting for more than three-quarters of the GDP. The service industry in the U.K. comprises many industries, including finance and business services, consumer-focused industries, such as retail, food and beverage, and entertainment. Manufacturing and production contribute less than 21% of the GDP, and agriculture contributes about 0.60%.
After posting steady growth in 2017, the U.K. manufacturing sector only grew by 0.4%, and construction output fell by 0.4% in 2018, according to The Blue Book: 2019 from the U.K. ONS. The food products division is the largest within the U.K. manufacturing sector, showing a decrease in sales of £0.9 billion in 2019 over 2018.
Growth in the services industry increased by 2.1% in 2018, a strengthening from the growth seen in the previous two years. An overall slowdown in real household consumption that started in 2017 continued in 2018, however. This reduction was blamed in part on the uncertainty over Brexit and a declining housing market.
Tourism is another big money-maker for the U.K. In 2019, visitors who are residents of other countries spent £28.4 billion, or $35.9 billion on travel and tourism in the U.K., according to the ONS. Visits in June 2019, the peak season for tourism, grew by 9% on a yearly basis. Overseas visitors spent £2.34 billion, 13% more than the previous year, according to Visit Britain.
U.K. exports were worth £689 billion in 2019, or 31.1% of GDP. Cars were the biggest goods product group by value at £31.6 billion. Financial services accounted for £63.2 billion of total exports in 2019. The EU is the country's largest single trading partner and accounted for 43.5% of exports in 2019.
Effect of Brexit on the U.K. Economy
The U.K.'s June 2016 decision to leave the European Union (EU), otherwise known as "Brexit" (short for British exit), formally took effect on January 31, 2020. Since the vote, numerous government agencies and nongovernmental organizations have projected that the uncertainty around ongoing Brexit negotiations has had a negative impact on the U.K. economy. However, because of the timeline, the actual economic impact of Brexit itself is still unclear. This is complicated further by the fact that economic events since the formal separation have largely been dominated by the effects of the COVID-19 related lockdowns.
A 2018 summary of various Brexit estimates by the independent Institute for Government, found that reliable projections of the long-term economic impact of Brexit differ wildly, mostly based on the assumptions that respective researchers have built into their models. Though the majority of projections are negative, they range from an 18% loss to a 7% gain in U.K. economic output as a result of Brexit.
Research from the Centre for European Reform, a pro-EU/anti-Brexit political think-tank funded by various multinational corporations, asserts that the vote to leave the EU cost the U.K.'s public finances £17 billion for the year as of September 2018, or £145 million a week. "Britain’s decision to leave the EU damaged growth, largely thanks to higher inflation and lower business investment. The U.K. missed out on a broad-based upturn in growth among advanced economies in 2017 and early 2018. And the economic cost of the decision so far is sizeable, if not disastrous," claimed deputy director John Springford.
The U.K.'s Office for Budget Responsibility, a government agency, suggests that several areas have been affected by the uncertainty related to the Brexit negotiations. They include declines in business investments, as well as the prospect of less access to foreign markets. This has spurred declines in the exchange rate that are raising inflation and reducing consumer income, and as a result, consumer income and spending are contributing less to economic growth.
COVID-19 and the U.K. Economy
The U.K. is noteworthy for its dramatic policy response to the COVID-19 pandemic. After initially announcing the intention to pursue a strategy of protecting the vulnerable while building herd immunity, the U.K. government radically shifted course based on the results of highly publicized model projections from the Imperial College of London. Subsequently, the U.K. implemented some of the most draconian lockdown measures, with a general national lockdown from March to July.
U.K. GDP experienced a record 20.4% decline in the second quarter 2020, and fell by 22.1% over the first half of 2020. Amidst the highly restrictive government measures in response to the pandemic, these declines were particularly prevalent in sectors most exposed to the government restrictions, including services, production, and construction. The larger economic decline in the U.K. relative to other countries reflects not just the restrictions imposed but the long period of the lockdown.