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Economic and political overview

Economic Overview

The United Kingdom is the 6th largest economy in the world. Following a severe contraction of -9.3% in 2020 due to the COVID-19 pandemic, UK GDP growth rebounded to 7.4% in 2021, before slowing down to 3.6% in 2022 amid persisting supply shortages and rising inflation (IMF). The IMF forecasts GDP growth to further reduce to 0.3% in 2023 and 0.6% in 2024. The OECD projections are more pessimistic, with an expected economic contraction of 0.4% in 2023 and a return to a positive growth rate of 0.2% in 2024. In addition to Brexit-related trade disruption, the UK is likely to continue being hit by significant supply-side constraints and acute labour shortages, exacerbated by the war in Ukraine. Business investment will remain subdued due to a higher cost of capital and lingering uncertainty (OECD).

The UK economy recovered strongly from the COVID-19 pandemic, thanks to emergency support measures and a rapid vaccine rollout. However, this rebound was accompanied by supply and labour shortages in the wake of rising global demand and higher shipping costs (OECD). In 2022, the economic recovery was further impeded by the consequences of the war in Ukraine. Fuelled by higher energy prices, inflation soared to 9.1% in 2022 from 2.6% in 2021, and is expected to remain at that level in 2023 (9%), before decreasing to 3.7% in 2024 (IMF). The government has adopted several support measures to help households and businesses to 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 soaring to -12.8% GDP in 2020 in the context of decreasing revenues and increasing emergency measures costs, the budget deficit reduced to -4.3% GDP in 2022 (IMF). It is expected to further decline to -2.3% GDP in 2023 and -1.5% GDP in 2024 through increased revenues (IMF). The debt-to-GDP ratio decreased from a high 102.6% in 2020 to 87% in 2022, and is expected to further reduce to 79.9% in 2023 76.7% in 2024 (IMF). Tackling inflation is the 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).

The measures taken by the government to support employees and the self-employed helped to contain the rise of the unemployment rate, which decreased to an estimated 3.8% in 2022 (from 4.5% in 2021). Unemployment is expected to increase again to 4.8% in 2023 and 5% in 2024 due to weaker demand (IMF). The country’s GDP per capita (PPP) was estimated at USD 49,675 in 2021 by the World Bank, 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. The government's efforts to invest in infrastructure, increase the supply of housing and increase the participation of women in the labour market will also help support more sustainable and inclusive growth.

 
Main Indicators 202020212022 (E)2023 (E)2024 (E)
GDP (billions USD) 2,706.543,123.233,070.603,158.943,375.22
GDP (Constant Prices, Annual % Change) -11.07.64.0-0.31.0
GDP per Capita (USD) 40,34746,42245,29546,37149,321
General Government Balance (in % of GDP) 0.8-3.6-4.5-4.3-2.8
General Government Gross Debt (in % of GDP) 105.6108.1102.6106.2109.7
Inflation Rate (%) 0.92.69.16.83.0
Unemployment Rate (% of the Labour Force) 4.64.53.74.24.7
Current Account (billions USD) -86.61-46.92-170.44-164.67-149.00
Current Account (in % of GDP) -3.2-1.5-5.6-5.2-4.4

Source: IMF – World Economic Outlook Database , October 2021

Country Risk

See the country risk analysis provided by La Coface.

 

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Main Sectors of Industry

The agricultural sector accounts for 0.7% 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 stands at 8.9 million hectares in 2022. The country’s total income from farming in 2021 was GBP 5,998 million, +14% year-on-year (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 17.5% 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 2021, the manufacturing sector accounted for 9.8% of total UK economic output (ONS). For the three months to November 2022, manufacturing output decreased by 6.2% compared with the same period the previous year (UK Parliament).

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, same as for the tourism sector, which generates around 10% of GDP. In the three months to November 2022, services output increased by 1.4% compared with the three months to November 2021 (UK Parliament). 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).

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 1.0 18.1 80.8
Value Added (in % of GDP) 0.7 17.5 71.5
Value Added (Annual % Change) 6.1 9.1 7.5

Source: World Bank - Latest available data.

 
Monetary Indicators 20162017201820192020
British Pound (GBP) - Average Annual Exchange Rate For 1 USD 0.740.780.750.800.78

Source: World Bank - Latest available data.

 

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Foreign Trade

The United Kingdom is one of the main players in international commerce, with foreign trade representing 57% of its GDP in 2021 (World Bank). The country is the 8th largest importer and 14th exporter of goods in the world, and the 2nd largest exporter and 6th largest importer of commercial services in the world (WTO). In 2021, the country mainly imported gold, cars, petroleum products, telephones, data processing machines and medicaments; and exported the same products as well as platinum and parts of aircraft (Comtrade). In 2022, the volume of exports of goods and services increased by 4.8% compared to 2021, after two years of decline in the context of the COVID-19 pandemic and Brexit. The volume of imports of goods and services increased by 8.4% (FMI). The IMF expects exports and imports to grow respectively by 3.8% and 3.4% in 2023. On 1 May 2021, the UK-EU trade deal came into force, granting the UK “zero tariff, zero quota” for its exports towards the EU. Nevertheless, a whole series of new customs and regulatory checks have been introduced, including rules of origin and stringent local content requirements, which could make the procedures more burdensome and thus hinder mutual trade.

In fact, the EU as a whole is the main trading partner of the United Kingdom. At a country level, the UK mainly exports towards the United States (12.7%), Germany (8.7%), Switzerland (8.4%), the Netherlands (7.9%), Ireland (6.2%) and France (5.6%); whereas its main suppliers are China (13.2%), Germany (11%), the United States (8.7%), the Netherlands (6%) and Norway (5.2%) (Comtrade). In order to diversify its business partners, the UK signed trade deals and agreements in principle with 71 countries and one with the EU.

The country has a structural trade deficit, even though it has a large surplus in the services sector. According to WTO data, in 2021 the United Kingdom imported USD 693.8 billion worth of goods (+9.3% y-o-y) and exported USD 468.2 billion (+15.7% y-o-y); in the same year, exports of services stood at USD 417.5 billion (+23.2% y-o-y), against USD 242.9 billion in imports (+20.8% y-o-y). The trade in goods and services deficit, excluding precious metals, narrowed by GBP 6.5 billion to GBP 20.2 billion in the three months to November 2022, driven by a decrease in goods imports from non-EU countries linked to falling fuel prices (ONS).

 
Foreign Trade Values 20172018201920202021
Imports of Goods (million USD) 643,515672,267695,798634,742693,774
Exports of Goods (million USD) 441,106486,439469,684404,681468,177
Imports of Services (million USD) 207,037260,767272,717201,163242,926
Exports of Services (million USD) 353,077410,685401,430338,804417,545

Source: World Trade Organisation (WTO) ; Latest available data

Foreign Trade Indicators 20172018201920202021
Foreign Trade (in % of GDP) 62.864.064.158.156.7
Trade Balance (million USD) -181,887-191,203-189,482-172,739-211,433
Trade Balance (Including Service) (million USD) -38,943-43,883-46,2078,295-24,233
Imports of Goods and Services (Annual % Change) 3.33.32.6-16.02.8
Exports of Goods and Services (Annual % Change) 6.83.11.7-12.1-0.3
Imports of Goods and Services (in % of GDP) 32.132.832.928.928.7
Exports of Goods and Services (in % of GDP) 30.731.231.329.227.9

Source: World Bank ; Latest available data

Foreign Trade Forecasts 20222023 (e)2024 (e)2025 (e)2026 (e)
Volume of exports of goods and services (Annual % change) 10.32.31.62.41.8
Volume of imports of goods and services (Annual % change) 12.64.20.41.11.5

Source: IMF, World Economic Outlook ; Latest available data

Note: (e) Estimated Data

 
International Economic Cooperation
The United Kingdom is a member of the following international economic organisations: IMF, Commonwealth, G-5, G-8, G-10, G-20, ICC, WHO, OECD, among others. For the full list of economic and other international organisations in which participates the United Kingdom click here. International organisation membership of the United Kingdom is also outlined here.
Free Trade Agreements
The complete and up-to-date list of Free Trade Agreements signed by the United Kingdom can be consulted here.
 

Main Partner Countries

Main Customers
(% of Exports)		 2022
United States 12.1%
Netherlands 8.3%
Germany 7.8%
China 6.7%
Switzerland 6.6%
See More Countries 58.5%
Main Suppliers
(% of Imports)		 2022
China 13.4%
United States 11.9%
Germany 8.6%
Norway 6.5%
France 4.2%
See More Countries 55.3%

Source: Comtrade, Latest Available Data

 

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Political Outline

Current Political Leaders
King: Charles III (since 8 September 2022). Predecessor: Queen Elizabeth II.
Prime Minister: Rishi Sunak (since 25 October 2022), Conservative Party.
Next Election Dates
General elections (House of Commons): May 2, 2024 (at the latest).
Current Political Context
In 2022, UK politics were marked by high volatility, with the ousting of two prime ministers. Criticized for breaking COVID rules by attending parties in Downing Street, Tory Premier Boris Johnson survived a confidence motion in June 2022, but resigned after allegations of sexual misconduct lead to a mass walkout by ministers in July. After just 49 days in office, Liz Truss resigned in October following policy blunders and U-turns and Rishi Sunak took over as prime minister (The Economist). Containing inflation, supporting growth, tackling public debt, reforming the NHS and controlling immigration are his priorities (BBC). After reigning for 70 years, Queen Elizabeth II died in September and was succeeded by her son King Charles III.

The UK government is providing a range of economic, humanitarian and defensive military assistance to Ukraine following its invasion by Russia, and is imposing sanctions on Russia and Belarus. The fallout from the Brexit process still weighs on the policy agenda and tensions with the EU remain. In September 2022, the government introduced the Retained EU Law, also known as the ‘Brexit Freedoms Bill’, which aims to abolish the principle of the supremacy of EU law in the UK by the end of 2023, and proposes to give the government new powers to amend, replace or repeal the EU laws copied into UK domestic legislation (European Parliament). The 'Northern Ireland Protocol bill' was also introduced in June 2022, providing that certain provisions of the Northern Ireland Protocol would no longer 'have effect in the UK' (European Parliament). Meanwhile, the UK worked on strengthening its commercial relations, signing rollover agreements (to ensure continuity to the deals previously covered by the EU), as well as negotiating numerous trade deals. The UK has also increased its activities in the region of western Balkans.
Main Political Parties
The three dominant parties:
- Labour Party: left-wing socialist and social democratic, grew out of trade union movement in the 19th century;
- Conservative Party: centre-right; believes in free-market economy, strong military and traditional cultural values;
- Liberal Democrats: centrist, moderate pro-European, opposed the Iraq war and strong on civil rights.
Other parties exist, such as:
- The Scottish National Party (SNP): centre-left;
- The UK Independence Party (UKIP): Eurosceptic, right-wing populist;
- The Green Party of England and Wales (GPEW - Greens): environmentalist
- The Democratic Unionist Party: right-wing;
- The Reform UK (Brexit Party): Eurosceptic
Executive Power
The King is the head of state. But above all he plays a symbolic and representational role. He continues to exercise three essential rights: the right to be consulted, to advise and to warn. Following legislative elections to the lower house of parliament, the leader of the majority party or coalition is usually appointed Prime Minister by the King to serve a five-year term. The Prime Minister is the head of government and has all executive powers, which include law enforcement and the conduct of the day-to-day affairs of the country. The Council of Ministers is appointed by the Prime Minister.
Legislative Power
The United Kingdom has a bicameral legislative system. The parliament is made up of: the House of Lords (the upper house), whose members are appointed for life by the King on the proposal of the Prime Minister (the number of members varies, currently at about 800), 91 hereditary peers and 26 members of the clergy. The House of Commons (lower house) has 650 seats, and its members are elected by universal suffrage, for a 5-year term. The government is directly responsible to and dependent on parliament.
 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For information on the economic recovery scheme put in place by the UK government to address the impact of the COVID-19 pandemic refer to the Bank of England’s publications and updates at Our response to Coronavirus (Covid-19).
For a general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) undertaken by the UK government, please consult the section dedicated to the United Kingdom in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.
 

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