United Kingdom Economy: Components, Type, Impact on US

Does the UK Still Affect the U.S. Economy?

United Kingdom economy
The City of London is the economic center of the UK. Photo: Frederic Soltan/Getty Images

Definition: The United Kingdom's economy produced $2.679 trillion in 2015 (based on purchasing power parity). It's the tenth largest in the world as measured Gross Domestic Product (GDP). The country is home to 64 million people. That makes its GDP per capita a healthy $41,200. But its standard of living is lower than the U.S. GDP per capita of $56,300. 

The UK's economy grew 2.2% in 2015. That's at the low range of the ideal GDP growth rate of between 2% to 3%.

It has slowly recovered from the beating it took during the 2008 financial crisis. It fought its way out of the Great Recession with low interest rates and government spending. That created concerns about its high debt to GDP ratio, currently at 90%. It must now try to lower spending without slowing growth.

The UK joined the European Union in 1999. In June 2016, it voted to leave the EU. Older voters in England's countryside did not see how EU membership helped them. They were worried about how increasing immigration from Syria would affect their national identity. For more, see  Brexit Consequences.

The UK never joined the Eurozone. That means it uses the British pound or sterling instead of the euro. That allows it to control its monetary policy. For example, it lowered interest rates when it needed to stimulate growth. That's one reason why it recovered from the recession faster than the EU did.

 

The United Kingdom is formally called the United Kingdom of Great Britain and Northern Ireland. It consists of four dependent countries: England, Northern Ireland, Wales, and Scotland. Great Britain is the island that contains England, Wales, and Scotland. All countries are governed by the British Parliament and the Queen.

They all also have some independent authority.

Components of the UK Economy 

More than 70% of the UK's economy is services, such as banking, insurance, and real estate. Manufacturing comprises 10%. Healthcare adds 9.1% compared to 18% in the United States.

Exports contributed 27% to the economy. That includes $442 billion in shipments of manufactured goods, chemicals, and food. Fifteen percent of UK exports go to the United States. The rest goes to Germany (10%), other European countries (25%), and China (6%).  The UK imports $617.1 billion of manufactured items, machinery, and food. Most of its imports come from Europe, with 10% from China and 9.2% from the United States. Since it imports more than it exports, it has a trade deficit of $175 billion. 

Type of Economy

The UK has a mixed economy. It provides a free market for business activity.  It has a command economy in the areas of defense, welfare, and education. The government provides free healthcare.  

Its government is a parliamentary constitutional monarchy. That means it's  semi-democracy based on a constitution and combined with a monarchy. There are two houses of Parliament. The 750 members of the House of Lords inherit their position.

Voters elect the 650 members of the House of Commons.The Queen has a largely ceremonial function, but advises the Prime Minister on important strategic issues.

How the United Kingdom Affects the U.S. Economy

The UK is America's staunch ally in defense. It was a founding member of NATO and the United Nations Security Council.  It was the only large European country that supported the War in Iraq. That allowed the War on Terror to continue, costing U.S. taxpayers.

The UK used to be the largest foreign holder of U.S. Treasury bills, bonds, and notes. China replaced it in 2007. The UK's holdings have fallen from $640 billion then to $207 billion as of December 2015. That's even less than Ireland, which holds $257.9 billion. (Source: U.S. Treasury, Major Foreign Holders