With a gross domestic product (GDP) of $3.07 trillion in 2022and a population of more than 67 million, the United Kingdom has the sixth-largest economy after the U.S., China, Japan, Germany, and India. The U.K. is made up of England, Scotland, Wales, and Northern Ireland. Itsquality of life is generally considered high, and the economy is quite diversified. The sectors that contribute most to the U.K.'s GDP are services, manufacturing,construction, and tourism.
Key Takeaways
- With a 2022 gross domestic product (GDP) of $3.07 trillion, the United Kingdom has the sixth-largest economy in the world.
- The services sector—which comprises many industries including finance, retail, and entertainment—accounts for 80% of the U.K.'s economic activity, while manufacturing and construction account for about 16%.
- The European Union is the U.K.'s largest single trading partner, accounting for about 42% of exports in 2020. The country it trades most with is the United States.
Sectors That Contribute to the Economy
According to the U.K. Office for National Statistics(ONS), the services sector is the largest sector in the U.K., accounting for 80% of gross value added (GVA), a measure of economic output that is similar to GDP. The service industry in the U.K. comprises many industries, including finance and business services, and consumer-focused industries, such as retail, food and beverage, and entertainment.The other two major contributors are manufacturing and construction, which contribute 10% and 6% to the U.K.'s total economic output, respectively. Agriculture contributes about 0.67%.
In 2020, the government, health, and education sectors made the biggest contributions in GVA to the U.K.'s economy, according to the Office of National Statistics (ONS). Distribution, transport, hotel, and restaurant industries also made significant contributions as did real estate and production industries.
Tourism is another big money-maker for the U.K. In 2022, visitors from other countries spent£26.5 billion, the equivalent of $34.3 billion, on travel and tourism in the U.K., according to the ONS.That represented a significant jump over the prior year, largely due to the elimination of pandemic-era travel restrictions.
U.K. Exports
U.K. exports were worth £847 billion in the 12 months to April 2023. The highest value specified goods exported were mechanical power generators, followed by crude oil and cars.
Meanwhile, in terms of services, financial services led the way with £73.8 billion of total exports in the 12 months to April 2023. The second and third highest contributors that were specified were travel services and telecoms, computer and information services.
The EU is the country's largest single trading partner and accounted for 42% of exports in 2020.
Effect of Brexiton the U.K. Economy
The U.K.'s June 2016 decision to leave the European Union (EU), otherwise known as "Brexit" (short for British exit), formally took effect on January 31, 2020. Since the vote, numerous government agencies and nongovernmental organizations reckon Brexit has had a negative impact on the U.K. economy.
It’s still relatively early days, though, and these haven’t been normal times. Since Brexit officially became effective, there has been a pandemic, energy crisis, and lots of economic turmoil, making it difficult to have a clear idea of the exact impact Britain’s leaving of the EU had.
A 2018 summary of various Brexit estimates by the independent Institute for Government, found that reliable projections of the long-term economic impact of Brexit differ wildly, mostly based on the assumptions that respective researchers had built into their models. Though the majority of projections were negative, they ranged from an 18% loss to a 7% gain in U.K. economic output as a result of Brexit.
Two-thirds of the British public think Brexit damaged the economy, while just one in five leave voters think the impact has been positive.
Research from theCentre for European Reform, a pro-EU/anti-Brexit political think-tank funded by various multinational corporations,asserted that the vote to leave the EU cost the U.K.'s public finances £40 billion per year as of 2022. The same analysis found that Brexit cost the U.K. about 5.5% of GDP and 11% of potential investment.
"The Brexit hit has inevitably led to tax rises, because a slower-growing economy requires higher taxation to fund public services and benefits. If Brexit had not happened, most of the tax rises that then Chancellor Rishi Sunak announced in March 2022 would not have been necessary," claimed deputy director John Springford.
Jonathan Portes, professor of economics and public policyat King's College London, agrees Brexit had a negative impact on the economy. However, he estimated in July 2023 that the impact it had on U.K. GDP is closer to 2-3%
The U.K.'sOffice for Budget Responsibility, a government agency, has also been gloomy. In its latest forecasts, dated March 2023, it claimed, among things, that Brexit will reduce exports and imports by about 15% over the long run and reduce long-term productivity by approximately 4%.
COVID-19 and the U.K. Economy
The U.K. is noteworthy for its dramatic policy response to the COVID-19 pandemic. After initially announcing the intention to pursue a strategy of protecting the vulnerable while building herd immunity, the U.K. government radically shifted course based on the results of highly publicized model projections from the Imperial College of London.Subsequently, the U.K. implemented draconian lockdown measures, with a general national lockdown from March to July 2020 and then several others until mid-2021.
U.K. GDP experienced a record 20.4% decline in the second quarter of 2020 and fell by 22.1% over the first half of 2020. Amidst the highly restrictive government measures in response to the pandemic, these declines were particularly prevalent in sectors most exposed to government restrictions, including services, production, and construction. The larger economic decline in the U.K. relative to other countries reflects not just the restrictions imposed but the long period of the lockdown.
British Royal Family
One of the largest sources of the Windsors’ wealth, as well as one of the most difficult to assess, is the family’s property holdings.The collective properties of the monarchy are managed by an entity known as The Crown Estate.
The Crown Estate is a corporation that was established by an act of Parliament and that manages the holdings of the monarchy through an independent council. The Windsors do not keep all of the revenue generated by The Crown Estate. Rather, they surrender the revenue to the British government in exchange for a Sovereign Grant from British taxpayers. The grant is equivalent to 25% of The Crown Estate’s profits and is used to pay for the upkeep of properties and various other royal duties.
What Is the UK's Biggest Industry?
By far the largest component of the United Kingdom's economy is the services sector, which accounts for about 80% of the country's gross added value. This includes areas like hospitality, retail, business administration, and financial services. The biggest industry in terms of employment is the retail and wholesale industry.
What Is the UK's Biggest Export?
In the 12 months to the end of April 2023, the biggest export goods from the United Kingdom were mechanical power generators, crude oil, and cars, while the biggest services exported were financial services, travel services, and telecoms, computer and information services.
How Does the U.K. Get Revenue?
The largest source of revenue for the United Kingdom is income tax. After that, National Insurance Contributions and the Value Added Tax are the second and third largest revenue sources, respectively.
The Bottom Line
The United Kingdom is the sixth largest economy in the world and a significant player in the world economy. Tourism, manufacturing, retail, and financial services all represent significant sources of income for this world-leading economy.
