Economic and Political Environment, Trade and Investment Opportunities in the United Kingdom - Case Study Example

Executive Summary

The United Kingdom economy has been a driving force in not only the European region, but also the globe. The emergence of the economy’s downturn has shifted attention to the need for more sustainable economic growth in the state.

The complexity of the internal and international market in relation to outstanding factors like political stability and the demography of the region have led to challenges that include low GDP growth rate and inflation in the country. Securing the vital economic growth and development does not only affect the living standards of the people but it also places a huge challenge to the investment and trading of the country. The relationship between the political stand in the country and the international relations holds with other countries is the key to any advancement in the growth of the country.

The key contributors to the UK economy are the industrial sector. For the past few years, it has mitigated the effects of the slow economic growth in the country. It has offered a short-term solution to many of the problems facing an unstable economy in the country, supporting any desired levels of economic activity throughout the region.

Some of the long-term resolves for sustainable economic growth include investments in the country, which has made the United Kingdom one of the most attractive places for any investors. The upward trend in their FDI ratings and limited regulations that may affect investors makes it a suitable place for any investment organization or company. It also creates many opportunities for any investor in the country allowing for rapid development and trading between countries in the region and around the world. It has also created a service demand in the United Kingdom, which has led to sustainable and efficient management of the international market competition.

Country Demographic Description—Market Size

The United Kingdom’s population, according to the 2011 census, was about 63 million. Over the years, it has grown to be the third largest population in the European Union. The overall population density is about 259 people per square kilometer. It has a recorded 32.152 million women and 31.029 million men, with the largest part of the population in England, accounting for 83.9%, followed by Scotland, Wales, and then Northern Ireland, accounting for 8.4%, 4.8% and 2.9% respectively (2011 Census: Population Estimates for the United Kingdom, 27 March 2011, 2011). Based on the current trend, it is estimated that the population growth is about 0.6% per annum. The average age structure of the United Kingdom reflects a broadening pyramid, where there are a smaller number of children to that of adults, a consequence of low birth rates. The large part of the population consists mostly of people aged between20 to 49 years.

The ethnicity in the United Kingdom is well diverse. According to the national Statistics Office in the United Kingdom, about 87.2 percent of the population constitutes White British. Asian ‘groups’, Indians, Pakistani, Bangladeshi, others, make up about 6.8 percent of the United Kingdom’s population. The black origin groups constitute about 3.4 percent, Chinese, Arab and other groups make up about 0.7 percent, 0.4 percent, and 0.6 percent respectively (2011 Census: Population Estimates for the United Kingdom, 27 March 2011, 2011). Due to the compatibility between the European countries, made possible by the European Union, the country continues to grow in diversity. The influx of migrates through the country every year continues to grow relatively, increasing the population by a handful.

Religion in the United Kingdom is also well diverse. According to the British Social Attitudes Survey 2012, about 59.5 percent of the population was made up of Christians. This might be influenced by the fact that the UK’s traditional religion is Christianity. Muslim is the second-largest religion, accounting for about 4.4 percent of the population, followed by Hindu, Sikh, Jewish, Buddhist, other religions and no religions make up 1.3%, 0.7%, 0.4%, 0.4%, 0.4%, and 25.7% respectively (2011 Census: Population Estimates for the United Kingdom, 27 March 2011, 2011).

In the United Kingdom, the official language is English, spoken by about 95 percent of the population as their official language. There are other regional languages: Irish, Welsh, Scots, Cornish, Scottish Gaelic and Ulster-Scots, that are protected under the European Character for Regional or Minority Languages. The United Kingdom has the largest number of illiterate youth in the developed world, according to a report by the Organization for Economic Co-operation and Development (OECD). This means that most of the youth I the United Kingdom are low-skilled people compared to countries like Japan or Finland (2011 Census: Population Estimates for the United Kingdom, 27 March 2011, 2011).

The UK health system is devolves, with Wales, Scotland, England and Northern Ireland having their own healthcare system. All their healthcare is monitored by the NHS making it the most developed healthcare system in the world ("About the National Health Service (NHS) in England - NHS Choices", 2016). The illiteracy in the UK makes it one of the most affected country by life style diseases like obesity. Healthcare in UK accounts for about 8.5 percent of the total GDP. The poor accessibility of healthcare in the country can be as a result of their autocratic top to down management culture.

Political Environment

A monarch, whose power is ceremonial, heads the United Kingdom’s political system. Elect people who are accountable to the ordinary citizens in the state lead the national parliament. The nature of the British Parliament is perceptibly bicameral, with two chamber legislature models housing the Lords and Commons (Darlington, 2016). It has three arms of the state that include the Executive, Legislature, and Judiciary. There is no separation of power in the United Kingdom. This means that all members of the legislature are also Ministers of the government.

The political risk in the United Kingdom can be looked at from the different stands taken by the government. The Labour-Lib Dem coalition is closely sharing close links to the labor workforce. They have a high expectation focused on social justice and fairness. They are included to tax evasions and fight policies by the Miliband’s market (Thomson & Rowland, 2014). This might mean better-working conditions but pose a huge economic problem. In contrast, the Conservative majority emphasize on lower taxes and familiar forms of conservatism that may lead to market solutions (Thomson & Rowland, 2014). They push for renegotiations in the EU membership in order to bargain more control over any financial policies. They also advocate for economic liberalism and free trade agreements. The Labour majority are also taking an interventionist method by creating fairer markets, and influencing pensions and banking. This also includes the reinstatement of corporate taxes in the state (Thomson & Rowland, 2014).

The United Kingdom is a fundamental member in the United Nations (UN) occupying a permanent seat on the United Nations Security Council. It also a member of the European Union. The European Union is an organization committed to promoting economic co-operation among all the European nations (EU). It is also a member of the Western European Union (WEU), the North Atlantic Treaty Organization (NATO) and the Organization for Security and Co-operation in Europe (OSCE). Organizations such as the EU have played a major part in the Economic growth of the United Kingdom as it opens up channels for more reliable and affordable investment and exporting opportunities all around the region.

Economic Environment of the United Kingdom

The United Kingdom’s environment not only compliments economic growth and activities, but it forms the basic construct for any financial and corresponding developments in the country (Goodwin & Beck, 2016). In the United Kingdom, has used the combination of different economic strategies in order to ensure sustainable economic growth in the country. The country relies on human capital, social capital, produced capital and natural capital in order to sustain produce of goods and services. The economic growth in the country has helped realize and better the living standards of many citizens in the country while ensuring sustainable development in the market and technology in the country (Goodwin & Beck, 2016).

Over the years, there the UK economy has been disappointing with a growth coming to about a sub-par of 2.2 percent (Goodwin & Beck, 2016). This is attributable to the buoyant consumer spending that has partly remained unfavorable for any business investment environment. This is also attributable to the upcoming referendums in the UK’s membership of the EU, generating a huge degree of uncertainty in the market and productivity growth. The external events, however, have proved useful, offering alternative resolves to this problem offering short term resolves to the risk surrounding the economic downside (Goodwin & Beck, 2016). Most of the financial infrastructure has been left exposed to the raising United States interest rates, which has triggered the fall of prices and other damaging sentiments.

In 2015, the growth rate of 2.2 percent was classed as a disappointment after not achieving expected average annual growth of 2.5 percent (Goodwin & Beck, 2016). This was due to the slowdown recorded after the 2.9% rise in the GDP in 2014. There has also been a noted downward trend in the economic performance of the country for their nominal GDP with a slow growth rate of about 2.7 percent in 2015, from the previously recorded 4.7 percent in 2014. However, there has been a strong rise in consumer spending in the past year by about 3.0 percent, which has accounted for strong rates since 2007 (Goodwin & Beck, 2016). The net trade negated the domestic demand in the country, leading to more import in 2015.

The GDP per capita was recorded at 38657.79 US dollars in the past year after adjustments with the purchasing power parity (PPP). The GDP was averaged to about 218 percent of the average world values. The Gross National Product was about 459327.00 GBP Million with a GDP annual Growth Rate of about 2 percent in the last year. The increasing rate of import of both goods and services has led to a fall in inventory, which has created a stock building that runs at 0.4 percent of the GDP in the last year, compared with 1 percent in 2014. This has led to inflation in the country with the prices of commodities skyrocketing. Mitigate most of the effects, fueling strong growth rate, through raising real incomes, offering easier credit and higher levels of consumer confidence.

Industries in the United Kingdom are the largest contributors to the United Kingdom’s economy. Over the years, they have contributed to about 78% of economic growth by 2012. Service industries, including transport, wholesale and retail trade, real estate, education, among others, have led to a considerable buildup of the GDP. The GDP from agriculture alone was at 2943.00 GBP Million in the past year. Others like the Construction, Public Administration, Transport, Mining, Services, and Manufacturing were set at 24299.00, 18776.00, 17622.00, 7583.00, 323700.00 and 38443.00 GBP Million in 2015 (Goodwin & Beck, 2016). This shows that they are the greatest contributors to the growth of the economy in the United Kingdom.

Through the government’s intervention, there has been greater support of growth in personal earnings growth that is supposed to boost the economy. This is through the National Living Wage (NLW), is supposed to compensate unemployed people in the UK (Goodwin & Beck, 2016). This is should benefit any worker from inflation increases that may lead to personal income tax allowances. The NLW should boost incomes and allow more generous tax offsets by cutting down any tax credits in the country.

Import and Exports of goods and services has also been a major contributor of economic growth in the United Kingdom. The deficit of most goods and services in the UK was estimated at about £3.5 billion at the beginning of the year. This narrowing of goods and services was due to the decrease in imports that was attributed to the unexpected fall in fuel and goods in the country. The most significant fall of goods was partly due to the rise in imports of transport, chemical and machinery equipment in the UK. By January 2016, the imports in has decreased by about 0.5 percent (UK trade: January 2016). The UK mostly trades with the EU, contributing to a major boost in the country’s economy. Most of the countries, in the trading block, that the UK trades with are mainly Germany, France, Belgium, Irish Republic and Luxembourg. By January 2016, The USA was recorded to be the top export partner of the UK, with about £3.9 billion, increasing by £0.6 Billion from December 2015. Germany on the other hand was the top importer of UK goods and services, by about £4.8 billion (UK trade: January 2016).

The UK’s consumer prices in the past year have gone up by about 0.5 percent and have been accelerating at about 0.3 percent in the last two months. The years on year consumer prices have been on the edge leading to a steady rise in inflation of about 0.3 percent, by May 2016. Household prices increased by about 0.1 percent and went up by 1.1 percent in the transport department. The Consumer Price Index in the United Kingdom in the last year was 100.60 in the index point, leading to a 0.5 percent in inflation rates (UK trade: January 2016).

The trade performance of the United Kingdom has been rapidly changing over the past few years. After the exit from the European Exchange Rate Mechanism and the depreciation of the sterling, the balance of the UK economy has been on the line. In 2007, the sterling exchange rate drop by about 25 percent at an average rate of about quarterly 4.0 percent. In 2008, the trade balance was relatively stable, with constant seasonal adjustment. This was due to the risen commodity prices, import intensity, the change in import and export prices, the overseas demand for products and services also depends on the international demand for any product or services. Many of the UK export partners have created huge economic de-stability with increased unemployment, contractions in most of outputs and limited demand growth.

Trade and Investment Opportunities in the United Kingdom

In the past two years, the United Kingdom has recorded a 12 percent increase in the Foreign Direct Investments. It was estimated to have exceeded the £1 trillion level by the year 2014 (Inward Investment Report 2014/15, 2016). Among the G7 countries, the UK had the highest growth at 2.8 percent of the global FDI arena. The UK’s FDI inflow, over the years, has risen to about 50 percent, with a net inflow of about $72 billion in 2014 (Inward Investment Report 2014/15, 2016). The low oil prices in the UK have contributed to the relatively strong growth in investment in the UK. This has led to greater reliability in the investment portfolio in the international market. It has also led to the UK being an attractive destination for FDI in the world. There has been a 29 percent increase in investments in the UK between 2013 and 2014, which showed the growing confidence of investors in the United Kingdom’s economy (Inward Investment Report 2014/15, 2016).

UKTI’s Institutional Investment and Infrastructure closely monitors and regulates extensive networks overseas. They create strategic relations with Pension Funds and Sovereign Wealth through policy development. The UK being the most internationally intensive marketplace, it has the unrivalled capability and capital to fund investments and development (Inward Investment Report 2014/15, 2016). The government maintains competitive advantage through reduced corporation tax rates, and eradicating unnecessary regulations; by enhancing visa support, providing tax rate reductions and credits and improving the workforce. The UKTI’s team also enhances awareness by providing relevant information to any organization or major infrastructure (Inward Investment Report 2014/15, 2016). They create a network of planned systems to mitigate any occurrences of fraudulent activity.

Owing to the high FDI stocks, the United Kingdom has become one of the most welcoming states of investments (Inward Investment Report 2014/15, 2016). This also led to the fact that the UK heavily benefits from foreign investments. Foreign investments have also created a huge potential to support any development in the country. It has allowed the government to accept foreign investments into the country as a means to rebalance and strengthen the economy, through the creation of jobs. This is evident in the 13 percent increase in the UK’s shares in the European manufacturing investments, which allowed many investors to move to the country (Inward Investment Report 2014/15, 2016). The FDI of UK is also ranked the best in the European region, meaning that this has attracted many foreign investors into the country.

Most types of investments, in the UK, are not regulated. In most cases, authorization of investors and traders is required in order to regulate the financial sector and try to curb any external market competition (Smith, 2012). The currency regulations or exchange controls in the country, affect both the outward and inward investments. There are restrictions that deal with assets and provision of funds that may be sanctioned to any entities or an individual in order to eliminate malicious activities like funding of terrorist organizations. Some sanctions on political trade may also be placed, targeting certain countries, in order to promote and maintain international security and peace (Smith, 2012). These embargoes are trading tools put in place by the European Union and the United Nations.