United Kingdom Economic Outlook
A dominant services sector:
The United Kingdom, comprising England, Scotland, Wales, and Northern Ireland, has one of the world's largest economies. The economy is characterized by its service sector dominance, particularly in finance, insurance, and professional services—as a whole, services activity accounts for around 80% of GDP. The UK also maintains a significant industrial base, including automotive and aerospace industries, though the relative importance of manufacturing has waned in recent decades.
Financial hub:The UK's financial services sector, centered in London, is a pivotal part of its economy. It is one of the largest global financial centers, home to major banks, insurance companies, and investment funds. This sector significantly contributes to the country's GDP and employment, though it faces post-Brexit challenges in maintaining its global influence.
Brexit:The runup to and aftermath of Brexit in 2020 has been marked by significant domestic political uncertainty and tensions with the EU, which have depressed investment in recent years. Moreover, leaving the EU has resulted in a permanent increase in trade barriers with the EU, which has led to weaker investment and exports than the status quo of EU membership. The government has attempted to pivot towards the Asia-Pacific—most notably by applying to join the CPTPP trade pact—although this will not compensate for lost trade with Europe.
Contrasting economic fortunes:In the years leading up to the 2016 Brexit referendum, UK GDP growth comfortably outpaced the G7 average. However, the economy has tended to underperform relative to G7 peers since then, amid higher prices and soft investment and exports due to Brexit.
Challenges:Looking forward, the UK economy faces several challenges, including managing the post-Brexit transition, addressing gaping regional economic disparities, tackling labor shortages in certain sectors, and reining in a public debt that is currently over 100% of GDP.
UK economic outlook:The UK economy will continue to benefit from key economic strengths such as a strong legal system, flexible labor market, well-performing higher education system and robust population growth. However, it will be constrained by permanently reduced competitiveness stemming from Brexit, which will likely keep GDP growth slightly below the G7 average over our forecast horizon. There are upside risks to growth if the new UK government under Labour's Keir Starmer is successful in reducing domestic planning constraints, devolving political power to the local level, and improving trade and investment ties with Europe.
The United Kingdom's Macroeconomic Analysis:
Nominal GDP of USD 3,381 billion in 2023.
Nominal GDP of USD 3,087 billion in 2022.
GDP per capita of USD 45,540 compared to the global average of USD 10,589.
GDP per capita of USD 49,632 compared to the global average of USD 10,589.
Average real GDP growth of 1.7% over the last decade.
Average real GDP growth of 1.7% over the last decade.
Sector Analysis
In 2021, services accounted for 82% of overall GDP, manufacturing 9%, other industrial activity 8%, and agriculture 1%. Looking at GDP by expenditure, private consumption accounted for 61% of GDP in 2021, government consumption 22%, fixed investment 17%, and net exports 0%.International trade
In 2021, manufactured products made up 63% of total merchandise exports, mineral fuels 8%, food 6%, ores and metals 7% and agricultural raw materials 1%, with other categories accounting for 15% of the total. In the same period, manufactured products made up 64% of total merchandise imports, mineral fuels 10%, food 9%, ores and metals 5% and agricultural raw materials 1%, with other goods accounting for 11% of the total. Total exports were worth USD 521 billion in 2022, while total imports were USD 791 billion.Main Economic Indicators
Economic growthThe United Kingdom's GDP growth over the last decade was impacted by Brexit uncertainties and the COVID-19 pandemic. The Brexit referendum in 2016 introduced prolonged economic uncertainty, affecting investment and growth. The pandemic caused a historic contraction in 2020, but a recovery followed, albeit with ongoing challenges from Brexit-related trade disruptions and soft global economic conditions. To read more about GDP growth in the United Kingdom, go to our dedicated page.
Fiscal policy
The United Kingdom's fiscal deficit over the last decade was marked by austerity, Brexit, and the pandemic. Efforts to reduce the deficit through spending cuts and tax increases were evident until 2016. Brexit-related fallout slowed deficit reduction progress. The COVID-19 pandemic necessitated significant fiscal spending, resulting in a substantial deficit. By 2022, the focus shifted to balancing fiscal consolidation with supporting post-pandemic recovery. Find out more on our dedicated page.
Unemployment
The United Kingdom's labor market over the last decade showed resilience. The unemployment rate reached historic lows by 2019. However, the COVID-19 pandemic caused disruptions, leading to a temporary spike in unemployment. By 2022, the job market had largely recovered, with unemployment rates back below pre-pandemic levels, although challenges such as labor shortages in specific sectors persisted. For more information on United Kingdom's unemployment click here.
Inflation
The United Kingdom saw moderate inflation up to 2021, but the COVID-19 pandemic led to a significant spike in 2022-2023, driven by supply chain disruptions and increased consumer demand. Go to our United Kingdom inflation page for extra insight.
Monetary Policy
The Bank of England's policy rate over the last decade was initially maintained at historically low levels to support post-financial crisis recovery. The rates saw a gradual increase pre-pandemic but were slashed to near-zero in 2020 to mitigate the economic impact of COVID-19. As the UK economy started recovering in 2021-2022, and inflationary pressures mounted, the Bank began increasing rates to control rising inflation. See our United Kingdom monetary policy page for additional details.
Exchange Rate
The British Pound experienced notable volatility over the last decade. The currency remained relatively stable until 2016, but the Brexit referendum triggered a significant depreciation due to uncertainty over the UK's economic future. Brexit negotiations and the COVID-19 pandemic added further instability, but the Pound gradually stabilized, albeit at weaker levels compared to pre-referendum, reflecting the country's reduced attractiveness to investors and lingering uncertainties over the trading relationship with the EU. For more info on the pound, click here.
Economic situation in The United Kingdom
Economic growth has waned as 2024 has progressed, declining from 0.7% in quarter-on-quarter seasonally adjusted terms in Q1 to 0.5% in Q2 and just 0.1% in Q3. Our Consensus is for an uptick in economic momentum in Q4, though available data calls for caution. In October, GDP fell by 0.1% month on month, defying market expectations for growth due to declines in manufacturing and construction output. This marked the second consecutive monthly decline—the first time this has happened since early 2020. Moreover, provisional data suggests that employment fell in November at the fastest pace in several years. This chimes with survey data stating that firms cut back on hiring in the month following proposed labor market reforms plus tax hikes announced in the recent budget.United Kingdom Economic Forecasts
Projections out to 2034.56 indicators covered including both annual and quarterly frequencies.
Consensus Forecasts based on a panel of 62 expert analysts.
Want to get insight on the economic outlook for United Kingdom in the coming years? FocusEconomics collects projections out to 2034 on 56 economic indicators for United Kingdom from a panel of 62 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts, and averaged to provide one Consensus Forecast you can rely on for each indicator. This means you avoid the risk of relying on out of date, biased or outlier forecasts. Our Consensus Forecasts can be visualized in whichever way best suits your needs, including via interactive online dashboards , direct data delivery and executive-style reports which combine analysts' projections with timely written analysis from our in-house team of economists on the latest developments in the United Kingdom economy. To download a sample report on the United Kingdom's economy, click here. To get in touch with our team for more information, fill in the form at the bottom of this page.
United Kingdom Economic Indicators
Frequently Asked Question about United Kingdom's Economy
What is the economic outlook for the UK?
What is the main economic system in the UK?
Is the UK a powerful economy?
The UK's economic outlook is mixed. While the economy is expected to grow in the coming years, growth will remain below pre-pandemic rates. Meanwhile, inflation and interest rates are likely to come down in the coming years after surging in 2022 and 2023.
The UK's economy is a mix of market capitalism and government intervention. Private businesses are key drivers of economic activity, but the government also plays a substantial role through industry regulation and social welfare initiatives. This blend seeks to harmonize economic growth with social equity and stability.
Yes, the UK is a powerful economy, consistently ranking as one of the world's largest by nominal GDP. It's a leading financial center, particularly in banking and insurance, and has significant contributions from the services, manufacturing, and technology sectors, although Brexit has diminished the economy's competitiveness.