The service sector dominates the UK economy, contributing around 80% of GDP; the financial services industry is particularly important, and London is the world's largest financial centre. Britain's aerospace industry is the second-largest national aerospace industry. Its pharmaceutical industry, the tenth-largest in the world, plays an important role in the economy. Of the world's 500 largest companies, 26 are headquartered in the UK. The economy is boosted by North Sea oil and gas production; its reserves were estimated at 2.8 billion barrels in 2016, although it has been a net importer of oil since 2005. There are significant regional variations in prosperity, with South East England and North East Scotland being the richest areas per capita. The size of London's economy makes it one of the largest cities 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, accounting for 9.1% of the world's GDP in 1870. From the late 19th century the Second Industrial Revolution was also taking place rapidly in the United States and the German Empire; 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. In the 21st century, however, it remains a global power and has an influential role in the world economy.

Government involvement in the British economy is primarily exercised by Her Majesty's Treasury, headed by the Chancellor of the Exchequer, and the Department for Business, Energy and Industrial Strategy. Since 1979 management of the 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, quantitative easing, and forward guidance.

The currency of the UK is the pound sterling, which is the world's third-largest reserve currency after the United States dollar and the euro, and is also one of the ten most-valued currencies in the world.

The UK is a member of the Commonwealth of Nations, the European Union (currently until 30 March 2019), the G7, the G8, the G20, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the Organisation for Security and Co-operation in Europe, the World Bank, the World Trade Organisation, Asian Infrastructure Investment Bank and the United Nations.

Economic history of the United Kingdom

1945 to 1973

After the Second World War, a new Labour government fully nationalised the Bank of England, civil aviation, telephone networks, railways, gas, electricity, and the coal, iron and steel industries, affecting 2.3 million workers. Post-war, the United Kingdom enjoyed a long period without a major recession; there was a rapid growth in prosperity in the 1950s and 1960s, with unemployment staying low and not exceeding 3.5% until the early 1970s. According to the OECD, the annual rate of growth 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.

Deindustrialisation

Deindustrialisation meant the closure of operations in mining, heavy industry, and manufacturing, resulting in the loss of highly paid working-class jobs. The UK's share of manufacturing output had risen from 9.5% in 1830, during the Industrial Revolution, to 22.9% in the 1870s. It fell to 13.6% by 1913, 10.7% by 1938, and 4.9% by 1973. Overseas competition, lack of innovation, trade unionism, the welfare state, loss of the British Empire, and cultural attitudes have all been put forward as explanations for the industrial decline. It reached crisis point in the 1970s, with a worldwide energy crisis, high inflation, and a dramatic influx of low-cost manufactured goods from Asia. Coal mining quickly collapsed and practically disappeared by the 21st century. Railways were decrepit, more textile mills closed than opened, steel employment fell sharply, and the car-making industry suffered. Popular responses varied a great deal: Some nostalgically invoked a glorious industrial past or the bygone empire to cope with their new-found personal economic insecurity, many turned to exclusionary Englishness, and others looked to the European Union for help. By the 2010s, grievances had accumulated enough to have a political impact. The United Kingdom Independence Party (UKIP), based in working-class towns, gained an increasing share of the vote while warning against the dangers of immigration. Political reverberations came to a head in the popular vote in favour of Brexit in 2016.

1973 to 1979

Following the 1973 oil crisis, the 1973–74 stock market crash, and the secondary banking crisis of 1973–75, the British economy fell into the 1973–75 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 in March 1974 after the general election on 28 February ended in a hung parliament. Wilson secured a three-seat overall 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 recession, the economy was blighted by rising unemployment and double-digit inflation, which exceeded 20% more than once and was rarely below 10% after 1973.

In 1976, the UK was forced to apply for a loan of £2.3 billion from the International Monetary Fund. Denis Healey, then Chancellor of the Exchequer, 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% 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 general election on 3 May 1979 which resulted in Margaret Thatcher's Conservative Party forming a new government.

1979 to 1997

A new period of neo-liberal economics began with this election. During the 1980s, many state-owned industries and utilities were privatised, taxes cut, trade union reforms passed and markets deregulated. GDP fell by 5.9% initially,[65] but growth subsequently returned and rose to an annual rate of 5% at its peak in 1988, one of the highest rates of any country in Europe.

Thatcher's modernisation of the economy was far from trouble-free; her battle with inflation, which in 1980 had risen to 21.9%, resulted in a substantial increase in unemployment from 5.3% in 1979 to over 10.4% by the start of 1982, peaking at nearly 11.9% in 1984 – a level not seen in Britain since the Great Depression. The rise in unemployment coincided with the early 1980s global recession, after which UK GDP did not reach its pre-recession rate until 1983. In spite of this, Thatcher was re-elected in June 1983 with a landslide majority. Inflation had fallen to 3.7%, while interest rates were relatively high at 9.56%.

The increase in unemployment was largely due to the government's economic policy which resulted in the closure of outdated factories and coal pits. Manufacturing in England and Wales declined from around 38% of jobs in 1961 to around 22% in 1981. This trend continued for most of the 1980s, with newer industries and the service sector enjoying significant growth. Many jobs were also lost as manufacturing became more efficient and fewer people were required to work in the sector. Unemployment had fallen below 3 million by the time of Thatcher's third successive election victory in June 1987; and by the end of 1989 it was down to 1.6 million.

Britain's economy slid into another global recession in late 1990; it shrank by a total of 6% from peak to trough, and unemployment increased from around 6.9% in spring 1990 to nearly 10.7% by the end of 1993. However, inflation dropped from 10.9% in 1990 to 1.3% three years later. The subsequent economic recovery was extremely strong, and unlike after the early 1980s recession, the recovery saw a rapid and substantial fall in unemployment, which was down to 7.2% by 1997,[68] although the popularity of the Conservative government had failed to improve with the economic upturn. The government won a fourth successive election in 1992 under John Major, who had succeeded Thatcher in November 1990, but soon afterwards came Black Wednesday, which damaged the Conservative government's reputation for economic competence, and from that stage onwards, the Labour Party was ascendant in the opinion polls, particularly in the immediate aftermath of Tony Blair's election as party leader in July 1994 after the sudden death of his predecessor John Smith.

Despite two recessions, wages grew consistently by around 2% per year in real terms from 1980 until 1997, and continued to grow until 2008.

1997 to 2008

In May 1997, Labour, led by Tony Blair, won the general election by a landslide after 18 years of Conservative government, and inherited a strong economy with low inflation, falling unemployment, and a current account surplus. Four days after the election, Gordon Brown, the new Chancellor of the Exchequer, gave the Bank of England the freedom to control monetary policy, which until then had been directed by the government. During Blair's 10 years in office there were 40 successive quarters of economic growth, lasting until the second quarter of 2008. GDP growth, which had briefly reached 4% per year in the early 1990s, gently declining thereafter, was relatively anaemic compared to prior decades, such as the 6.5% per year peak in the early 1970s, although growth was smoother and more consistent. Annual growth rates averaged 2.68% between 1992 and 2007, with the finance sector accounting for a greater part than previously. The period saw one of the highest GDP growth rates of any developed economy and the strongest of any European nation. At the same time, household debt rose from £420 billion in 1994 to £1 trillion in 2004 and £1.46 trillion in 2008 – more than the entire GDP of the UK.

This extended period of growth ended in Q2 of 2008 when the United Kingdom suddenly entered a recession- its first for nearly two decades - brought about by the global financial crisis. The UK was particularly vulnerable to the crisis because its financial sector was the most highly leveraged of any major economy. Beginning with the collapse of Northern Rock, which was taken into public ownership in February 2008, other banks had to be partly nationalised. The Royal Bank of Scotland Group, at its peak the fifth-largest bank in the world by market capitalisation, was effectively nationalised in October 2008. By mid-2009, HM Treasury had a 70.33% controlling shareholding in RBS, and a 43% shareholding, through UK Financial Investments Limited, in Lloyds Banking Group. The Great Recession, as it came to be known, saw unemployment rise from just over 1.6 million in January 2008 to nearly 2.5 million by October 2009.

The UK had been one of the strongest economies in terms of inflation, interest rates and unemployment, all of which remained lower until the 2008–09 recession. In August 2008 the IMF warned that the country's outlook had worsened due to a twin shock: financial turmoil and rising commodity prices. Both developments harmed the UK more than most developed countries, as it obtained revenue from exporting financial services while running deficits in goods and commodities, including food. In 2007, the UK had the world's third largest current account deficit, due mainly to a large deficit in manufactured goods. In May 2008, the IMF advised the UK government to broaden the scope of fiscal policy to promote external balance. The UK's output per hour worked was on a par with the average for the "old" EU-15 countries

2009 to 2015

In March 2009, the Bank of England cut interest rates to a historic low of 0.5% and began quantitative easing to boost lending and shore up the economy. The UK exited the Great Recession in Q4 of 2009 having experienced six consecutive quarters of negative growth, shrinking by 6.03% from peak to trough, making it the longest recession since records began and the deepest recession since World War II. Support for Labour slumped during the recession, and the general election of 2010 resulted in a coalition government being formed by the Conservatives and the Liberal Democrats, which made deep spending cuts in order to ease the budget deficit.

In 2011, total debt (national, household, financial, and business debts) stood at 497% of GDP in the UK, compared to 492% in Japan, 341% in France, 289% in the United States, 284% in Germany, and 274% in Canada. As the world's most indebted country, spending and investment in the UK were held back after the recession, creating economic malaise. However, it was recognised that government borrowing, which rose from 52% to 76% of GDP, had helped to avoid a 1930s-style depression.

Between 2005 and 2011, the UK dropped from 5th place to 12th in terms of household income globally. It was partially attributed to the devaluation of sterling. However, inflation was steady, the labour market had been more resilient compared to other recessions, and wealth and household spending were strong relative to other OECD countries.

Within three years of the general election, government cuts had led to public sector job losses well into six figures, but the private sector enjoyed strong jobs growth, and by October 2013 unemployment was below 2.5 million for the first time in four years. By the end of 2014, UK GDP growth had become the fastest in the Group of Seven (G7) and in Europe, and employment was at its highest since records began. In stark contrast to the early 2000s, the UK had one of the least productive workforces of the major economies, following seven years of stagnation in productivity. Output per hour worked was 18% below the average for the rest of the G7.

2016 to present day

Following the UK's decision in June 2016 to leave the European Union, the Bank of England cut interest rates to a new historic low of 0.25% to bolster confidence in the economy. The Bank also bought £60bn of UK government bonds and £10bn of corporate bonds, taking the amount of quantitative easing since the Great Recession to £435bn.

The previous 10 years had been the worst decade for real wage growth since the 1860s. Mark Carney, Governor of the Bank of England, described it as a lost decade. Productivity was 16% below the long-term trend,[107] and the recovery was still very unbalanced, with consumption accounting for 100% of growth in 2016. Households ran an unprecedented deficit of 3% of GDP. Unemployment continued to fall, resulting in a 42-year low of 4.4% in June 2017, but real earnings also fell due to rising inflation.

In October 2017, the ONS revised the UK's balance of payments, changing the net international investment position from a surplus of £469bn to a deficit of £22bn. Deeper analysis of outward investment revealed that much of what was thought to be foreign debt securities owned by British companies were actually loans to British citizens. Inward investment also dropped, from a surplus of £120bn in the first half of 2016 to a deficit of £25bn in the same period of 2017. The UK had been relying on a surplus of inward investment to make up for its long-term current account deficit. A widely anticipated improvement in the UK's trade balance on the back of a weaker pound failed to materialise as of Q3 2017.

In the decade to 2018, overall UK productivity growth was the worst since the 1820s, with any growth being attributed to a fall in working hours rather than an increase in output. Jobs had also been lost in the highly efficient manufacturing sector and gained in the less productive service sector.

Agriculture

A combine harvester in use in Scotland

Main articles: Agriculture in the United Kingdom and Forestry in the United Kingdom

Agriculture in the UK is intensive, highly mechanised, and efficient by European standards, producing about 60% of food needs,[117] with less than 1.6% of the labour force (535,000 workers).[117] It contributes around 0.6% of British national value added.[117] Around two-thirds of the production is devoted to livestock, one-third to arable crops.[117] Agriculture is subsidised by the European Union's Common Agricultural Policy.

The UK retains a significant, though reduced, fishing industry. Its fleets, based in towns such as Kingston upon Hull, Grimsby, Fleetwood, Newlyn, Great Yarmouth, Peterhead, Fraserburgh, and Lowestoft, bring home fish ranging from sole to herring.

The Blue Book 2013 reports that "Agriculture" added gross value of £9,438 million to the UK economy in 2011.