The service sector dominates the UK economy, contributing around 78% of GDP; the financial services industry is particularly important and London is the world's largest financial centre. The British aerospace industry is the second- or third-largest national aerospace industry depending on the method of measurement. The pharmaceutical industry plays an important role in the economy and the UK has the third-highest share of global pharmaceutical R&D. The automotive industry is also a major employer and exporter. The British economy is boosted by North Sea oil and gas production; its reserves were valued at an estimated £120 billion in 2011. There are significant regional variations in prosperity, with the South East of England and southern Scotland the richest areas per capita. The size of London's economy makes it the largest city by GDP in Europe.
In the 18th century the UK was the first country to industrialise and during the 19th century it had a dominant role in the global economy. From the late 19th century the Second Industrial Revolution was also taking place rapidly in the United States and Germany, this presented an increasing economic challenge for the UK. The costs of fighting World War I and World War II further weakened the UK's relative position. However, as of 2016 it remains a great power with global strengths and an influential role in the world economy.
In 2008, the UK entered a recession during the financial crisis of 2007–08, its first for nearly two decades, and initially experienced a deeper downturn than all of the G7 except Japan. However, since 2013 the UK has been in a nascent economic recovery and is firmly in expansion territory. The UK economy is now (Q1 2016) 7.3% bigger than its pre-crisis peak and 14.2% bigger than its lowest point in 2009. Since 2010, the Government has been pursuing an austerity program aimed at cutting the budget deficit. In the financial year 2009–10 this was 12.1% of GDP, it was 3.9% in the financial year 2015–16.
Government involvement in the British economy is primarily exercised by HM Treasury, headed by the Chancellor of the Exchequer, and the Department for Business, Innovation and Skills. Since 1979 management of the UK economy has followed a broadly laissez-faire approach. The Bank of England is the UK's central bank and its Monetary Policy Committee is responsible for setting interest rates. The currency of the UK is the pound sterling, which is also the world's third-largest reserve currency after the US dollar and the euro, and also the fourth-most-valued currency in the world, behind the Kuwaiti Dinar, Bahraini Dinar, and Omani Rial, and the most valued currency outside the Middle East. The UK is a member of the Commonwealth of Nations, the European Union (although preparing to leave), the G7, the G8, the G20, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the World Bank, the World Trade Organisation, Asian Infrastructure Investment Bank and the United Nations.
Following the end of the Second World War, the United Kingdom enjoyed a long period without a major recession (from 1945 to 1973) and a rapid growth in prosperity in the 1950s and 1960s, with unemployment staying low and not exceeding 500,000 until the second half of the 1960s. According to the OECD, the annual rate of growth (percentage change) between 1960 and 1973 averaged 2.9%, although this figure was far behind the rates of other European countries such as France, West Germany and Italy.
However, following the 1973 oil crisis and the 1973–1974 stock market crash, the British economy fell into recession and the government of Edward Heath was ousted by the Labour Party under Harold Wilson, which had previously governed from 1964 to 1970. Wilson formed a minority government on 4 March 1974 after the general election on 28 February ended in a hung parliament. Wilson subsequently secured a three-seat majority in a second election in October that year.
The UK recorded weaker growth than many other European nations in the 1970s; even after the early 1970s recession ended, the economy was still blighted by rising unemployment and double-digit inflation, which exceeded 20% more than once after 1973 and was rarely below 10% after this date.
In 1976, the UK was forced to request a loan of £2.3 billion from the International Monetary Fund. The then Chancellor of the Exchequer Denis Healey was required to implement public spending cuts and other economic reforms in order to secure the loan, and for a while the British economy improved, with growth of 4.3 per cent in early 1979. However, following the Winter of Discontent, when the UK was hit by numerous public sector strikes, the government of James Callaghan lost a vote of no confidence in March 1979. This triggered the May 1979 general election which resulted in Margaret Thatcher's Conservative Party forming a new government.
The construction industry of the United Kingdom contributed gross value of £86 billion to the UK economy in 2011.The industry employed around 2.2 million people in the fourth quarter of 2009. There were around 194,000 construction firms in the United Kingdom in 2009, of which around 75,400 employed just one person and 62 employed over 1,200 people. In 2009 the construction industry in the UK received total orders of around £18.7 billion from the private sector and £15.1 billion from the public sector.
The largest construction project in the UK is Crossrail. Due to open in 2018, it will be a new railway line running east to west through London and into the surrounding countryside with a branch to Heathrow Airport. The main feature of the project is construction of 42 km (26 mi) of new tunnels connecting stations in central London. It is also Europe's biggest construction project with a £15 billion projected cost.
Prospective construction projects include the High Speed 2 line between London and the West Midlands and Crossrail .
In 2011 the UK manufacturing sector generated approximately £140,539 million in gross value added and employed around 2.6 million people. Of the approximately £16 billion invested in R&D by UK businesses in 2008, approximately £12 billion was by manufacturing businesses. In 2008, the UK was the sixth-largest manufacturer in the world measured by value of output.
In 2008 around 180,000 people in the UK were directly employed in the UK automotive manufacturing sector. In that year the sector had a turnover of £52.5 billion, generated £26.6 billion of exports and produced around 1.45 million passenger vehicles and 203,000 commercial vehicles. The UK is a major centre for engine manufacturing, and in 2008 around 3.16 million engines were produced in the country.
The aerospace industry of the UK is the second- or third-largest aerospace industry in the world, depending upon the method of measurement. The industry employs around 113,000 people directly and around 276,000 indirectly and has an annual turnover of around £20 billion. British companies with a major presence in the industry include BAE Systems (the world's second-largest defence contractor) and Rolls-Royce (the world's second-largest aircraft engine maker). Foreign aerospace companies active in the UK include EADS and its Airbus subsidiary, which employs over 13,000 people in the UK.
The pharmaceutical industry employs around 67,000 people in the UK and in 2007 contributed £8.4 billion to the UK's GDP and invested a total of £3.9 billion in research and development. In 2007 exports of pharmaceutical products from the UK totalled £14.6 billion, creating a trade surplus in pharmaceutical products of £4.3 billion. The UK is home to GlaxoSmithKline and AstraZeneca, respectively the world's third- and seventh-largest pharmaceutical companies.
London is the world capital for foreign exchange trading, with a global market share of nearly 41% in 2013 of the daily $5.3 trillion global turnover. The highest daily volume, counted in trillions of dollars US, is reached when New York enters the trade. 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. Pound sterling is also used as a reserve currency by other governments and institutions, and is the third-largest after the US dollar and the euro.
The UK chose not to join the euro at the currency's launch. The government of former Prime Minister Tony Blair had pledged to hold a public referendum for deciding membership should "five economic tests" be met. Until relatively recently there was debate over whether or not the UK should abolish its currency Pound Sterling and join the Euro. In 2007 the British Prime Minister, Gordon Brown, pledged at the time to hold a public referendum based on certain tests he set as Chancellor of the Exchequer. When assessing the tests, Gordon Brown concluded that while the decision was close, the United Kingdom should not yet join the Euro. He ruled out membership for the foreseeable future, saying that the decision not to join had been right for the UK and for Europe. In particular, he cited fluctuations in house prices as a barrier to immediate entry. Public opinion polls have shown that a majority of Britons have been opposed to joining the single currency for some considerable time and this position has now hardened further. In 2005, more than half (55%) of the UK were against adopting the currency, while 30% were in favour. The current Conservative government is opposed to membership.
As a member of the European Union, the UK is bound to numerous EU-wide trade and market policies. According to the 2014 report within the "Balance of EU competences" review, the majority of the EU trade policies have been beneficial for UK, despite the proportion of the country's exports going to the EU falling from 54 percent to 47 percent over the past decade. The total value of exports however has increased in the same period from £130 billion (€160 billion) to £240 billion (€275 billion). On the 23rd June, 2016 in a national referendum of their membership of the EU, the UK voted to leave the EU. The precise consequences of this vote appear uncertain at present.
The United Kingdom is a developed country with social welfare infrastructure, thus discussions surrounding poverty tend to be of relative poverty rather than absolute poverty. According to the OECD, the UK is in the lower half of developed country rankings for poverty rates, doing better than Italy and the US but less well than France, Austria, Hungary, Slovakia and the Nordic countries.Eurostat figures show that the numbers of Britons at risk of poverty has fallen to 15.9% in 2014, down from 17.1% in 2010 and 19% in 2005 (after social transfers were taken into account).
The poverty line in the UK is commonly defined as being 60% of the median household income. In 2007–2008, this was calculated to be £115 per week for single adults with no dependent children; £199 per week for couples with no dependent children; £195 per week for single adults with two dependent children under 14; and £279 per week for couples with two dependent children under 14. In 2007–2008, 13.5 million people, or 22% of the population, lived below this line. This is a higher level of relative poverty than all but four other EU members. In the same year, 4.0 million children, 31% of the total, lived in households below the poverty line, after housing costs were taken into account. This is a decrease of 400,000 children since 1998–1999.
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