Economic Overview Of The UK Economics Essay

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The United Kingdom ranked among the world's seventh largest economy in 2009, with a nominal GDP (purchasing power parity) of US$ 2.149 trillion and the GNI per capita (PPP) of $35200 (CIA 2010). And it was also one of the most popular location for foreign direct investment in Europe, with a population of 61.4 million (IMF 2010 &The World Bank 2009). Over the last decade, the GDP growth in the UK has regularly outpaced the average growth of the other countries in Eurozone (Euromonitor 2009).

2 Challenges after Global Financial Crisis

In common with many other countries, 2009 was a difficult year for UK as well, with the influence of global financial crisis. The UK was officially in recession since the 2nd quarter of 2008 and in that year its economy also ended at 60-year low (Watt 2008). Subsequently in 2009 the UK economy declined even quicker. According to the recent statistics, the United Kingdom has emerged from recession in the 4th quarter of 2009, with GDP growing by 0.3% which was the first economic expansion since Q1 2008 (Euromonitor 2010). However, its annual 3.3% downturn and slow recovery speed still indicated a sluggish recovery process from the global economic crisis (Pachta 2010). The Confederation of British Industry also stated that despite of the current improving economy trend in the UK, the recovery in 2010 will still be "slow and fragile" due to the tightening of monetary policy and increasing unemployment (Euromonitor 2010; Hall 2010).

3 Foreign Investment

Generally the UK has a strong historic record in attracting foreign investment with an international open economy (UK Trade & Investment 2009). In 2008 it received the 3rd largest number of foreign direct investment globally, with US$97 billion of FDI inflows, which is also the highest amount in Europe (UK Trade & Investment 2009). As a member of the European Union, "the world's largest trading entity", the UK is very attractive to many foreign investors due to the favourable domestic market size with nearly 500 million consumers and a comparatively low-cost labour base in comparison with other advanced EU economies (IMF 2009; See & Zhurek 1998).

4 Market & Expenditure

In UK there is one of the fastest growing food markets in the world, which has generated sales of £217 billion in the third quarter of 2009 (ONS 2010). However, The UK market is also one of the most competitive markets in the world, with the food industry at a saturation level. The statistics indicate that between 2000 and 2007, the overall expenditure on food actually fell by 0.8% because of the intensely competition in the UK (Euromonitor International 2008). When the major food retailers began the price war, the aggressively discounting prices streamlined supply chains and forced suppliers to reduce their prices, which resulted in decreasing amount of total sales (Euromonitor International 2008). According to the Office of National Statistics (2010), the UK's household consumption fell by 1.9% in 2009 and the private final consumption expenditure in real terms is predicted to decline by 0.2% in 2010 because of the hit on the retail industry for the rise of VAT (Value Added Tax) increase by 2.5% since 1 January 2010 (Euromonitor 2010).

5 Unemployment

Generally the unemployment rate in the UK is well below the European Union average (ONS 2009). However, generally the decline in GDP and rising unemployment is the feature of recessions in global economy crisis (Euromonitor 2008). Figures for January 2010 showed that the unemployment rate was 7.8%, indicating of 2.46 million people unemployed (ONS 2010). Besides the rise of 852000 unemployed workers compared with previous year, the employment rate also turned out to be the lowest since the winter of 1996-97 (ONS 2010; Dilworth 2010). As a consequence, "the declining job security brings further downward pressure on consumption" (Euromonitor 2010). Most of the UK workers are afraid of losing their jobs and intend to cut their spending more or less in face of these depressing data (Euromonitor 2010). What's worse, as a "lagging indicator" the increasing unemployment rate may continue to hinder consumer confidence in 2010 according the Confederation of British Industry (Hall, 2010; Euromonitor 2010).

6 Conclusion

In summary, when the economic downturn hit the UK in 2008-2009, which increased unemployment and brought fears about high inflation and excessive government debt, it also changed the economic landscape in the UK and will continue to alter the behaviours of numerous UK consumers (Euromonitor 2010). Therefore I suggest that our company should eliminate UK as a potential investing market due to its severe economic downturn from the GFC and the slow recovery process afterwards.

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