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Quick Facts
- Population:
- GDP (PPP):
- $2.8 trillion
- 2.2% growth
- 2.1% 5-year compound annual growth
- $42,481 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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The United Kingdom’s economic freedom score is 78.0, making its economy the 8th freest in the 2018 Index. Its overall score has increased by 1.6 points, led by significantly higher scores for the fiscal health and government spending indicators. The U.K. is ranked 4th among 44 countries in the Europe region, and its overall score is above the regional and world averages.
The process of exiting the European Union will afford the government opportunities to correct any remaining structural deficiencies that might be holding back an already high-performing economy. The U.K. showed resilience in recovering from the financial crisis, aided by effective rule of law, an open trade regime, and a well-developed financial sector. The already liberal labor market can be made more flexible after “Brexit.” The U.K. has one of the world’s most efficient business and investment environments and will soon be open to expanded global trade relationships.
Background
Following Prime Minister Margaret Thatcher’s market reforms in the 1980s, Britain’s economy grew steadily throughout the 1990s. It is now the world’s fifth largest. After successive Labour governments in the early 2000s, the Conservatives returned to power in 2010. In June 2016, the U.K. voted by popular referendum to leave the European Union. Prime Minister David Cameron had opposed Brexit and resigned. His successor, Theresa May, is negotiating the nation’s exit from the EU. The Conservative Party lost its parliamentary majority in June 2017 but stayed in power with the support of Northern Ireland’s Democratic Unionist Party. Services, particularly banking, insurance, and business services, are key drivers of GDP growth. Large oil and natural gas reserves are declining.
The U.K. is a mature nation with an accountable democracy where private property rights and contracts are very secure. The judiciary is largely seen as impartial, efficient, and independent. Protection of intellectual property rights is effective. The rule of law is well established, and the overall strength of the political system was vividly illustrated by the resignation of the former prime minister following his Brexit defeat.
The top personal income tax rate is 45 percent. The top corporate tax rate has been reduced to 20 percent. Other taxes include value-added and environment taxes. The overall tax burden equals 32.5 percent of total domestic income. Over the past three years, government spending has amounted to 43.0 percent of total output (GDP), and budget deficits have averaged 4.4 percent of GDP. Public debt is equivalent to 89.2 percent of GDP.
The United Kingdom is a business-friendly country with regulations that are conducive to entrepreneurial activity. In March 2017, the employment-to-population ratio was the highest since 1791. Demand for high-skill, high-technology jobs outpaces the number of work-ready graduates that the educational system can produce. The U.K. has few price controls but does regulate rates for most utilities and partly controls the price of prescription drugs.
Trade is significant for the United Kingdom’s economy; the combined value of exports and imports equals 58 percent of GDP. The average applied tariff rate is 1.6 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. Foreign and domestic investors generally are treated equally under the law. The highly competitive banking sector offers a wide range of financial services.