UK Economic System

                   Arjun  Kyal

                 Bipin Kala

                 Economics SL

                 2 September 2015

                                   

                                                   Economic System of U.K.

            The U.K. has the fifth-largest national economy and the second largest in Europe (measured by nominal GDP). It is a free market capitalist society and one of the worlds most globalised economies. A free market is a market economy system in which the prices for goods and services are set independently by consent between vendors and consumers, in which the laws and forces of supply and demand are free from any intervention by the government, price setting monopoly or any other authority.

            The UK economy is dominated by the service sector, which contributes about 78% of GDP. An important role is played by the pharmaceutical industry and UK has the third highest share of global pharmaceutical R&D. Another major employer and exporter is the automobile industry. North Sea Oil and Gas productions, whose reserves were valued at an estimated £250 billion boosts the economy in the UK.

         The HM treasury primarily exercises government involvement throughout the economy. It is headed by the Chancellor of Exchequer. In the past few years, the UK economy has been managed in accordance with principles of market liberalisation and low taxation and regulation. Since 1997, the Bank of England’s Monetary Policy Committee has been setting interest rates at the required level to achieve the overall inflation target for the economy. This target is set by the Chancellor each year. Taxes are paid to a minimum of two different levels of government in the UK- local government and central government. Taxes are paid to the local government by grants from central government funds, council tax business rates and from fees and charges such as those from on street parking. Central government revenues come mostly from value added tax, income tax, national insurance contributions fuel duty and corporation tax.

         In 2007, the UK went through a major recession. It was caused when the banks created too much money and then used that money to push up house prices and speculate on financial markets. Very little of this money went to businesses outside the financial sector (only 8%). After sometime, the debts became unpayable and caused a financial crisis. After the crisis, banks refused to lend money and the economy shrunk. Now it is on its way out of recession.

          The UK has one of the largest labour forces in the world with 31.9 million. Unemployment is high with 8.02% unemployment. Currently,1.4% of the labour force works in agriculture, 18.2% in industries and 80.4% in services. Soon, less people will work in agriculture due to the ageing population and lack of interest. However, agriculture is still important as it produces 60% of UKs food needs.

           However, the most important part of UKs economy remains services. The most important services of UK are finance and banking. London is one of the three major commanding centres in the world with New York and Tokyo. London Stock Exchange, the London International Financial Futures and Options Exchange, the London Metals Exchange, Lloyds of London, and the Bank of England are among important financial institutions located within London.

                                                    

                                                               Bibliography

https://en.wikipedia.org/wiki/Economy_of_the_United_Kingdom#Economic_Data_-_Statistical_Information

http://www.economywatch.com/world_economy/united-kingdom/structure-of-economy.html