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Economic Indicators

The United Kingdom is the 6th largest economy in the world. After rebounding in 2022 (+4.1%), GDP growth was subdued in 2023, estimated at 0.5% by the IMF as the effects of elevated interest rates and more stringent fiscal policies counterbalance the advantages to households stemming from reduced energy prices. Accordingly, consumption is set to grow only slowly 2024, before picking up in 2025. Concerning companies, despite the dissipation of Brexit-related uncertainty and the robust condition of balance sheets, they are confronted with subdued short-term prospects for demand growth and significantly elevated borrowing costs. The IMF expects growth to be low in 2024 (+0,6%), while a modest pickup should be registered in 2025 (2%), although structural impediments to growth will persist, including low levels of both public and private investment and skills gaps.

Concerning public finances, the public sector deficit narrowed to 3.3% of GDP in 2023 (from 3.8%) and should decrease to 3.1% of GDP by 2025, owing to a combination of increased taxes and reduced spending. In 2023, the tax burden rose by over 0.5% of GDP. Government expenditure plans anticipated minimal growth in nominal spending for the fiscal years 2023-24 and 2024-25, posing challenges amidst heightened pressures on the public sector, particularly for increased wages. Elevated bond yields also led to a significant rise in debt interest payments. The government's gross debt is projected to slightly decrease over the forecast horizon, going from 104.1% of GDP in 2023 to 107.3% by 2025 (nevertheless, the EU Commission sees the debt declining to 96.5%). The government has adopted several support measures to help households and businesses cope with rising energy prices, including the Energy Price Guarantee and the Energy Bill Relief Scheme. The Bank of England has responded to rising inflation with monetary tightening, raising the policy rate several times, and starting to sell government bonds. After peaking in 2022, inflation was estimated at 7.7% last year and is expected to gradually decline in the forecast period, reaching 2.1% in 2025, remaining slightly above the 2% inflation target. Tackling inflation is the government’s priority, in addition to addressing long-standing structural challenges such as low productivity growth, high inequalities of opportunity and achieving carbon neutrality, with the ‘Plan for Growth’ and ‘Levelling Up’ agenda (OECD).

While the labour market experienced swift employment expansion in early 2023, the momentum waned in the latter part of the year. Employment has been on the decline since April, vacancies have decreased, and the unemployment rate has inched up from 3.7% in 2022 to 4.2% in the previous year. Anticipated to climb to 4.6% in 2024 due to sluggish employment growth, unemployment should slightly decrease in 2025 as employment growth picks up, reaching 4.3% according to the IMF. The country’s GDP per capita (PPP) was estimated at USD 56,836 in 2023 by the IMF, but the relatively solid macroeconomic performance of the United Kingdom conceals weaknesses and situations of inequality. Thus, as the IMF has emphasised, strengthening human capital is a key priority.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 3,100.113,344.743,495.263,685.413,915.57
GDP (Constant Prices, Annual % Change) 4.30.10.51.51.7
GDP per Capita (USD) 45,73049,09951,07553,62756,759
General Government Balance (in % of GDP) -3.0-4.7-2.9-2.9-3.0
General Government Gross Debt (in % of GDP) 100.4101.1104.3106.4107.3
Inflation Rate (%) 9.17.32.52.02.0
Unemployment Rate (% of the Labour Force) 3.94.04.24.14.0
Current Account (billions USD) -95.51-73.49-90.73-103.72-109.17
Current Account (in % of GDP) -3.1-2.2-2.6-2.8-2.8

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

The agricultural sector accounts for 0.8% of GDP, but is very productive, the country managing to produce enough to meet around 60% of its food demand. The primary sector employs 1% of the active population (World Bank, latest data available). The main crops produced in the UK are potatoes, beets, wheat and barley. Livestock farming (especially sheep and cattle) remains a major agricultural activity. The fishing sector is also well developed but is currently suffering from the depletion of fish volumes in traditional fishing areas (the subject was a key issue of the trade deal concluded with the EU, which states that the UK will have the right to completely exclude EU boats after 2026). According to the latest data from the Office for National Statistics (ONS), the utilised agricultural area stood at 8.8 million hectares in 2023. The country’s total income from farming in 2022 was GBP 7.9 billion, +16.6% year-on-year; while the total livestock output was GBP 19.3 billion (+16.2% - ONS, latest data available).

The United Kingdom is one of the world's largest producing countries, with particularly important civil and military aerospace and pharmaceutical industries, and has considerable mineral resources. Once the 10th-largest oil producer in the world with huge natural gas reserves, its production is declining rapidly. Nevertheless, groups such as British Petroleum (BP) continue to be among the world leaders in the petroleum industry. The industrial sector, which accounts for 16.7% of GDP and employs 18% of the working population, is not very competitive, mainly due to low productivity. Some of the main sectors include machine tools, transport equipment and chemicals. Among the sectors with strong potential are information and communication technologies, biotechnologies, aviation, renewable energies and defence. In 2022, the total value of UK manufacturers' product sales was GBP 429.8 billion, an increase of 7% from the previous year. The manufacture of food remained the largest division and represented 21% of the total. In July–September 2023, the manufacturing sector accounted for 9.4% of total UK economic output.

The tertiary sector is the backbone of the British economy, representing 72.2% of GDP and 81% of employment. Despite Brexit, London remains the largest financial centre in Europe, on par with New York, and it is also home to the headquarters of many multinationals. The banking sector has been very dynamic, the same as the tourism sector, which generates around 10% of GDP. There are more than 370 monetary financial institutions in the UK, with just under half the sector balance sheet being held in GBP, less than a fifth in EUR and less than a third in other currencies (European Banking Federation). According to figures from the House of Commons, in the three months to October 2023, services output increased by 0.5% y-o-y.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 1.0 18.0 81.0
Value Added (in % of GDP) 0.7 17.9 71.0
Value Added (Annual % Change) 3.3 -0.5 5.3

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
78,4/100
World Rank:
7
Regional Rank:
3

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
7.70/10
World Rank:
17/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

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Actualitzacions: April 2024

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