Assignment: You are required to construct a case study/researchpaper during the second part of the term. The primary purpose of the paper isto: ·Furtherunderstand the economic way of thinking...

ANALYSIS OF UNITED KINGDOM ECONOMY
ABSTRACT
The paper is short study of the United Kingdom economy. It will be an effort to analyze the most
important macroeconomic variables of this economy; it will elaborate on the status of the
economy’s GDP, unemployment, inflation rate, the tradeoff between these variables, fiscal and
monetary policies, with their pros and cons, expansions and contraction, and also its international

trade. Towards the end this paper makes an attempt to recommend some policies for the
economy against the ones that the nation is currently operating on, for the rapid growth of the
economy.
INTRODUCTION
United Kingdom is the nation that initiated industrial revolution during the nineteenth century
and since then has maintained its significant position in the financial world affairs. It has sixth
rank in the world (third in Europe) when compared on the basis of nominal GDP and eighth rank
in the world (second in Europe) when compared on the basis of Purchasing Power Parity. UK
has a population of 62.74 million by 2011 estimates and had 28
th
rank in world (HDI score
0.863) according to Human Development Report of 2011. UK is among the world’s highly
globalised economies with London as world’s largest financial hub. UK’s outward and inward
foreign direct investment was recorded to be third highest in the word at the end of 2010. The
currency of United Kingdom is Pound Sterling. The most important industries of UK are
aerospace industry and pharmaceutical industry both of which are world’s largest national
industries and it also plans to advance knowledge economy. This economy’s significant stake
lies in the North Sea oil and gas reserves which were valued at £250 billion approximately in
2007.
GROSS DOMESTIC PRODUCT
The gross domestic product (GDP) is supposed to measure value of output and national income
for a nation or economy and it is the total expenditure on all final goods and services produced in
a country in a given period of time. UK’s gross domestic product stands at 2.445 trillion USD in
2011, i.e. it is behind two of its European counterparts, Germany with 3.601 trillion USD and
France with 2.773 trillion USD. UK’s GDP value constitutes 3.92% of the world economy. The
world bank estimates suggest that the GDP for united kingdom had a record low in 1960 wt 72.3
billion USD and had since then grown gradually and reached its peak in 2007 at 2811 billion
USD. The effects of 2008 crisis on GDP were seen with a lag when the GDP dropped drastically
in 2009 to 2173 billion USD. It has recovered somewhat but not made full compensation for the
crisis, GDP for 2011 stands at 2431 billion USD.
According to UK Office for National Statistics estimates the growth rate of GDP was 1.2% in
2007, declining drastically to -2.1% in 2009, but recovered gradually to again reach a positive
growth rate by 2010. Since then the UK’s growth rate for GDP has been fluctuating. It was
recorded that GDP for UK has grown at the rate of 0.3% in the first quarter of 2013.
Moving forward to the sectoral division of the GDP, agriculture sector accounts for only 0.7% of
the UK’s GDP, industry sector accounts for 21.5%, whereas the major contributor is services
sector accounting for 77.8% of UK’s GDP by 2011 estimates. Within services sector the
contribution of each service is as follows: Transport, Distribution and Hotels- 18%; Health and
Education and Government- 20%; Professional and Support-11%; Insurance and Finance- 9%;
and Real Estate- 9%. It must be noted that though UK is among world’s largest manufacturers,
but still its production segment contributes only 10% to GDP.
UNEMPLOYMENT AND INFLATION RATE
UK measures unemployment rate as the number of persons actively looking out for a job as a
percentage of the total labour force. The UK Office for National Statistics has recorded the
unemployment rate at 7.8% for the first quarter of 2013 with 2.54 million people unemployed. It
is observed that unemployment rate currently is much higher than the 2008 level (5.0% to 5.5%),
where the sharp rise accrues majorly to the crisis period, since then unemployment rate has not
been controlled and hovers around in the range of 7.5% to 8.5%.
The inflation rate has observed moderation over...