Macro Environment Analysis Of The Uk Economics Essay

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The United Kingdom consists of the island of Great Britain which is formed by England, Wales, Scotland, and Northern Ireland; this country has a land area of 244,820 sq km (94,526 sq mi) and it´s located on the northwest coast of Europe between the Atlantic Ocean and the North Sea. This country is separated from the rest of Europe by the Strait of Dover and the English Channel; on the other part the Irish Sea and St. George's Channel separate the UK and from the Republic of Ireland.


Even when the UK has a relatively small land area its overall population density is one of the highest in the world; the estimated resident population of the UK was 61,383,000 in mid-2008, up by 408,000 on the previous year. Almost one-third of this population resides in England's southeast and is predominantly urban and suburban--with about 7.5 million in London, the capital city of the UK and the largest city in Europe. [1] 

The average age of the population was 39 years in mid-2008; like many populations of the most developed countries, the UK average age is getting higher as a result of sustained low fertility and increasing life expectancy; according to the last statistics, children under 16 represented around one fifth of the total population, with the same proportion to those who are in retirement age. [2] 

Even when the average age is higher now, the number of births has increased steadily since mid-2003. [3] (See appendix 1). Over the past six years women in their twenties have experienced small increases in fertility, this new trend contrasts with the one experienced in the 1980s and 1990s in which the country witnessed a fall in its fertility rate. The common family size in the UK still remains two children. Approximately a 40% of the women who were reaching the age of 45 in 2009 had a family comprised of two children. [4] (see appendix 2)

Political System

The United Kingdom is ruled under a parliamentary democracy system; in this system the government is voted into power by the people, to act in their bests interests. When someone is elected by the majority of the population in the country, they have the responsibility for developing and implementing policy and draft laws. This political system also has a Parliament, which is the highest legislative authority, some of the responsibilities of this Parliament are checking the work of the government and debating and approving new laws. [5] 

In conjunction with this system, the UK is also a constitutional monarchy which means that the there´s an established monarch within the country (currently Queen Elizabeth II), however this monarch is politically impartial and has limited powers. [6] 

Legal System

The UK does not have a written constitution. The laws that rule the country are based on statutes, common law, and "traditional rights", however new laws can be created by three sources, by new acts of Parliament, the acceptance of new practices and the usage of this or by judicial precedents. [7] 

Economic Analysis


The UK unit of currency is the pound sterling (£).

Economic Overview:

The United Kingdom is the sixth-largest economy in the world and the third largest economy in the EU with a GDP of $2.68 trillion USD.UK is a fully developed, diversified, market based economy thus their population has a high living standard. The country enjoys some of the lowest unemployment and inflation rates in the EU. [8] Its GDP per capita is of $43,734; [9] among the economic activities with a great input into the GDP we can mention the agriculture, the industry and the services. Agriculture is 1 percent of the GDP with products such as cereals, oilseed, vegetables, cattle, sheep, poultry and fish. The industry accounts for 6 percent of the GDP with steel, heavy engineering, metal manufacturing, textiles, motor vehicles and aircraft, construction, electronics and chemicals. The services in the other hand is the industry that has more input into the UK's GDP ; with 75 percent accounted to just this industry, the types of services that help to form this percentage are services such as financial, business, distribution, transport, communication and hotels among others. [10] 

As every market economy, trade has a critical influence in the economy, the UK exports of goods and services in 2008 was of $458.8 billion USD, some of the articles that are exported are fuels, food, chemicals, beverages, manufactured goods and tobacco. The major markets it exports to are the U.S. and the European Union. Imports on the other hand were of $630.7 billion USD, they were mainly of goods and services such as manufactured goods, machinery, fuels, and foodstuffs. Its major suppliers of the UK are the U.S., European Union, Japan, and China. [11] 

Foreign direct investment is particularly important for the UK, because the country receives more inward investment than any other country except the United States.(see appendix 3). More than one-third of the UK's manufacturing sector is now foreign owned, and it is an even more important source of jobs in many regions. [12] 

The United Kingdom's economy was hit by mayhem in the financial markets. It entered a recession in the third quarter of 2008, accompanied by rising unemployment which increased from 5.2% in January 2008 to 7.9% in July 2009. In response to this mayhem, the British Government implemented a wide-ranging stability and recovery plan that included a fiscal stimulus package, bank recapitalization, and credit stimulus schemes. [13] 

Current status of the economy:

The UK is a developed country with a very strong economy. Part of the strength of the economy is thanks to the industrialized sector which is growing at its fastest rate in the last fifteen years, this growth can be explained by a never before seen leap in the exports of finished goods. At the same time, according to the Bank of England, foreign investors are introducing money into the government bond market at such a fast rate that in only two months they have bought more gilts than in all of 2009. These two events are closely related to the pound, and the depreciation it has had over the last three years, along with the UK's retention of the pound instead of joining the euro, which has resulted in haven for investors in times like this, with the Greek financial crisis. [14] Although the pound has fallen, it has been proven to be useful for foreign companies because it has helped them increase their profits' margins and therefore helped to lift exports.

Creating your company in the UK:

According to the legal system of the United Kingdom it doesn´t matter if you are creating a new business or registering a foreign company, the process is the same.

In this country you can register your company under any of the following structures:

Private company that is limited by shares

Private company that is limited by guarantee

Private unlimited company

Public limited company (PLC)

Societas Europaea (SE)

Choosing a name

It is important to study the UK regulation when registering a name because according to the laws there are some words or expressions that cannot be used without official permission.

Registering an overseas company

When it comes to an overseas company, you must register documents if it:

Has a place of business in the UK

Holds business from a particular location in the UK

There are some types of companies that cannot be registered as an overseas company; some of these include partnerships and unincorporated bodies. Another requirement for a foreign company being registered in the UK is to register its corporate details and the details of any establishment in the UK they had set up.

Attitude towards foreign investment:

The UK is a country characterized by its open and welcoming attitude towards foreign direct investment (FDI) this good attitude has made the UK a large receiver of FDI in the recent years. However that´s not the only reason; the strong legal framework and the taxation policies are also a prominent reasons. [15] 

The United Kingdom is aware that a primarily important factor for attracting foreign investment comes down to taxation policies and in response to this factor they have created favorable taxation policies which have given the country a distinct edge over other countries of the world when it comes to attracting foreign investment. The taxation system of the United Kingdom provides tax benefits on the money spent on production and on the depreciation of assets used in the production process [16] .

There´s yet one more factor that has made the UK such a great place to invest; the people and consumers; within this country people offer a good attitude towards foreign products; they are very familiar with foreign investors, thus their attitude towards them either as consumers or employees is positive. It might be said that Britain has genuinely embraced globalisation. [17] 

The foreign and commonwealth office website gives a hint to explain this extremely welcoming attitude; according to them the UK is not be very open to foreign investments or enterprises because they are such a major and important financial centre, they are a major financial centre because they are open to foreign investment. Overall the attitude of the UK towards foreign investment is extremely positive, people have embraced values such as open markets, products, international capital flows and services and perceive these values as an important contributor for their economic success. [18] 


If the company is resident in the United Kingdom a corporation tax must be paid. This tax is paid on worldwide profits after adjusted for taxes.

The rates payable for the corporation tax are:

If a company have profits up to £300,000 they must pay 21%

If the profit is between £300,001 and £1.5 million the taxation rate will be between 21% and 28%, depending on the amount of the profits.

Companies with profits higher than £1.5 million must pay 28%


Companies who supply goods and services in the United Kingdom must pay this tax, this tax is applicable as well if the tax turnover of the company is higher than £70,000

The rates applicable for VAT are:

17.5 % ; this is the standard rate and will change only if a company is in one of the following situations:

5 % when it concerns the use of fuel and power on homes and on charities

Zero applicable to different items among those are food, books and newspapers.

Businesses in the industries of insurance, some types of selling, leasing and letting land and buildings, but this excludes garages, parking spaces, hotels and holiday accommodation are not subject or applicable for VAT.



The BBC or British Broadcasting Corporation is the biggest and most important television chains the United Kingdom, and the most important newscaster of the world. It is considered to be independent due to the fact that it is funded by the taxes of the people. This television chain also broadcasts some of the most popular shows in the UK such as Pop World, Culture Shock, The Beat Culture Shock, Pages of a book, and Music without frontiers among others. Other channels of the BBC are BBC Choice, BBC Prime, BBC World, BBC 1 and BBC 2 among others.


There are hundreds of radio stations in the United Kingdom, the most important ones are those operated by the BBC such as BBC Radio 1, BBC World Service, BBC Northern Ireland, BBC Radio 5 Live among others. There are also other national radio stations which are commercial; they are Absolute Radio, Classic FM and talkSPORT.


Newspapers are traditionally categorized into two types in the United Kingdom, broadsheets and tabloids. The broadsheets are usually a larger size and are considered to be more intellectual, on the contrary with the tabloids which are smaller and cover stories about celebrities and gossip.


A large range of magazines are sold in the UK which cover topics that go from science to fashion. Famous examples of magazines in the UK are Private Eye, Hello!, The Spectator, the Radio Times and NME


Mid-2008 population of the constituent countries of the UK:

Family size in England and Wales

Foreign Investment in the EU