Economy

The UK economy is made up (in descending order of size) of the economies of England, Scotland, Wales and Northern Ireland. Based on market exchange rates, the United Kingdom is today the fifth largest economy in the world^[155] and the second largest in Europe after Germany.

The Industrial Revolution started in the United Kingdom with an initial concentration on heavy industries such as shipbuilding, coal mining, steel production, and textiles. The empire created an overseas market for British products, allowing the UK to dominate international trade in the 19th century. However, as other nations industrialised, coupled with economic decline after two world wars, the United Kingdom began to lose its competitive advantage and heavy industry declined, by degrees, throughout the 20th century. Manufacturing remains a significant part of the economy, but accounted for only one-sixth of national output in 2003.^[156] The British motor industry is a significant part of this sector, although it has diminished with the collapse of the MG Rover Group and most of the industry is foreign owned. Civil and defence aircraft production is led by the United Kingdom's largest aerospace firm, BAE Systems, and the continental European firm EADS, the owner of Airbus. Rolls-Royce holds a major share of the global aerospace engines market. The chemical and pharmaceutical industry is strong in the UK, with the world's second and sixth largest pharmaceutical firms (GlaxoSmithKline and AstraZeneca, respectively)^[157] being based in the UK.

The UK service sector, however, has grown substantially, and now makes up about 73% of GDP.^[158] The service sector is dominated by financial services, especially in banking and insurance. London is the world's largest financial centre with the London Stock Exchange, the London International Financial Futures and Options Exchange, and the Lloyd's of London insurance market all based in the City of London. London is a major centre for international business and commerce and is the leader of the three "command centres" for the global economy (along with New York City and Tokyo).^[159] It has the largest concentration of foreign bank branches in the world. In the past decade, a rival financial centre in London has grown in the Docklands area, with HSBC and Barclays Bank relocating their head offices there. Many multinational companies that are not primarily UK-based have chosen to site their European or rest-of-world headquarters in London: an example is the US financial services firm Citigroup. The Scottish capital, Edinburgh, has one of the large financial centres of Europe^[160] and is the headquarters of the Royal Bank of Scotland Group, one of the world's largest banks.

Tourism is very important to the British economy. With over 27 million tourists arriving in 2004, the United Kingdom is ranked as the sixth major tourist destination in the world.^[161] London, by a considerable margin, is the most visited city in the world with 15.6 million visitors in 2006, ahead of 2nd placed Bangkok (10.4 million visitors) and 3rd placed Paris (9.7 million).^[162]

The creative industries accounted for 7% GVA in 2005 and grew at an average of 6% per annum between 1997 and 2005.^[163]

The United Kingdom's agriculture sector accounts for only 0.9% of the country's GDP.^[8]

The UK has a small coal reserve along with significant, yet continuously declining^[164] natural gas and oil reserves. Over 400 million tonnes of proven coal reserves have been identified in the UK.^[165] In 2004, total UK coal consumption (including imports) was 61 million tonnes,^[166] allowing the UK to be self sufficient in coal for just over 6.5 years, although at present extraction rates it would take 20 years to mine.^[165] An alternative to coal-fired electricity generation is underground coal gasification (UCG). UGC involves injecting steam and oxygen down a borehole, which extracts gas from the coal and draws the mixture to the surface - a potentially very low carbon method of exploiting coal. Identified onshore areas that have the potential for UGC amount to between 7 billion tonnes and 16 billion tonnes.^[167] Based on current UK coal consumption, these volumes represent reserves that could last the UK between 200 and 400 years.^[168]

Government involvement throughout the economy is exercised by the Chancellor of the Exchequer (currently Alistair Darling) who heads HM Treasury, but the Prime Minister (currently The Rt Hon Gordon Brown MP), is First Lord of the Treasury; the Chancellor of the Exchequer is the Second Lord of the Treasury. In recent years, the UK economy has been managed in accordance with principles of market liberalisation and low taxation and regulation. Since 1997, the Bank of England's Monetary Policy Committee, headed by the Governor of the Bank of England, has been responsible for setting interest rates at the level necessary to achieve the overall inflation target for the economy that is set by the Chancellor each year.^[169] The Scottish Government, subject to the approval of the Scottish Parliament, has the power to vary the basic rate of income tax payable in Scotland by plus or minus 3 pence in the pound, though this power has not yet been exercised.

As of 2007, the UK's government debt was 44% of GDP.^[8]

The currency of the UK is the pound sterling, represented by the symbol £. The Bank of England is the central bank, responsible for issuing currency. Banks in Scotland and Northern Ireland retain the right to issue their own notes, subject to retaining enough Bank of England notes in reserve to cover the issue. The UK chose not to join the euro at the currency's launch, and the British Prime Minister, The Rt Hon Gordon Brown MP, has ruled out membership for the foreseeable future, saying that the decision not to join had been right for Britain and for Europe.^[170] The government of former Prime Minister Tony Blair had pledged to hold a public referendum for deciding membership should "five economic tests" be met. In 2005, more than half (55%) of the UK were against adopting the currency, while 30% were in favour.^[171]