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Britain's economy.

Economic Background

Britain has an open economy in which international trade plays a vital part. In 1990, exports of goods and services accounted for about 25 per cent of Gross Domestic Product (GDP)-a comparatively high share among the major economies. The proportion has gradually increased in recent decades from about 20 per cent in the early 1960s.

Economic Growth and Living Standards

From 1981 to 1989 the British economy had eight years of sustained growth at an average annual rate of over 3 per cent, faster than either Germany or France. However, economic growth in 1990 was 05 per cent and output fell between mid-1990 and mid-1991. The rate of growth slowed in Britain's economy when productivity as a whole fell between 1989 and 1990 as part of a cyclical decline in activity. Overall, economic growth in recent years has led to a marked rise in living standards, the emergence of new industries and the renewal and improvement of much of the country's infrastructure.

Forecasts

A forecast in late June from the Organisation for Economic Cooperation and Development (OECD) in the run-up to the Munich Economic Summit said Britain's economy would grow but much more slowly than previously envisaged, being constrained by high unemployment, a weak housing market and large debts. It estimated output growth at 0.4% this year. It believed a hesitant recovery was starting and saw some hopeful signs: a rapid drop in private-sector wage settlements, low underlying inflation an end to political uncertainties, and higher public spending.

Trade

One of the largest exporters of manufactures, Britain accounts for some 5 per cent of the world total. It is among the major exporters of aerospace products, electrical equipment, most types of machinery, chemicals and oil. It is also one of the world's largest importers of agricultural products, raw materials and semi-manufactures. An increasing proportion of trade is with member countries of the European Community, also with Japan and with the newly industrialised countries, including Singapore, Korea, Taiwan and Malaysia.

Record exports in May 1992 helped to cut pound sterling 500 million off Britain's visible trade deficit, bringing the gap between exports and imports to its lowest level in 1992. The Central Statistical Officer reported on 22 June that the visible trade deficit fell to a seasonally adjusted pound sterling 845 million in May from pound sterling 1.36 billion in April, after a 4 per cent rise in exports to pound sterling 9.17 billion (a record in both value and volume) and a 1.5 per cent drop in imports to pound sterling 10 billion (still a record in volume). The surplus from invisible trade such as banking, insurance and tourism was estimated at pound sterling 200 million in May, so that the current account deficit in May was sharply trimmed to pound sterling 645 million, compared with pound sterling 1.16 billion in April. The total current account deficit for the first five months of the year is now estimated at sterling 4.4 billion. To a large extent, the improvement in May was due to increased trade in the so-called oil and erratic items, in this case an increase in oil exports and a drop in imports of aircraft. With these items stripped out, figures are broadly in line with the current trends. The Treasury said the high level of imports was a sign that the economy was recovering while the strong export performance was encouraging.
COUNTRY PROFILE
(1990)
Population (millions) 57.4
GDP (|pounds~ million)
(average estimates) 416.8
Exports (|pounds~ million) 123.6
Imports (|pounds~ million) 139.1
Workforces in
employment (millions) 26.9
% of Workforce
unemployed 5.8
Inflation (%) 5.5
Life expectency (Years) 75.5


Britain's trade deficit in the first quarter of the year was pound sterling 2.64 billion - almost half a billion more than was originally estimated, according to Central Statistical Office figures issued on 15 June. The current account deficit, measuring trade in both goods and services, was almost double that of the final quarter of last year. The Treasury said weaker earnings from investments overseas and a large one-off payment to the European Community were to blame.

Output and Growth

In the decade 1980-1990, manufacturing productivity grew faster in Britain than in any other major industrialised country. By 1985, output of the production industries as a whole (manufacturing, energy and water) had risen above its earlier peak of 1979. There was sustained growth between 1983 and 1989 and followed by a period of decline between early 1990 and the first half of 1991. Energy output in 1986 was about twice the level of 10 years earlier but with oil output having passed its peak level of the mid-1980s, and with the need for field shut-downs for the purposes of carrying out safety-related work, output had fallen back by over 15 per cent by 1990.

There was a disappointing fall in manufacturing output in May 1992, according to figures released by the Central Statistical Office on 14 July. Output fell by 0.6 per cent from the April level and industrial production dropped 1 per cent, partly because of a drop in North Sea oil output. This means, compared with 1991, that manufacturing was down 1.1 per cent.

Updated figures for gross domestic product issued by the Central Statistical Office on 24 June indicated that Britain's economy performed better in the first quarter than previously estimated. But GDP still contracted by 0.5 per cent, or by 0.3 per cent excluding oil and gas production. This means that recession in the non-oil economy has now lasted seven consecutive quarters, the longest span since the 1930s. But the Treasury said it was still expecting economic recovery to become established during the rest of the year. In this it was supported by the independent Henley Centre for Economic Forecasting, which said that Britain's GDP would rise by 1.4 per cent this year.

Employment and Industrial Relations

Britain's workforce in employment amounted to 26.4 million in March 1991 having increased by 3.3 million in the 7 years to June 1990. However, it declined slightly in the second half of 1990. Since 1979, self-employment has risen every year to reach 3.3 million by mid-1990. The number of women at work has also risen. Labour market improvements form an important part of the Government's economic strategy. Even when the workforce was expanding, unemployment did not fall as quickly as employment rose. But when the economy grew rapidly between July 1986 and March 1990, Subsequently unemployment has risen. In August 1991 it amounted to 2.4 million - equal to 8.5 per cent of the workforce.

Figures from the Employment Department on 18 June 1992 showed that industrial disputes continued at a record low in April. Fewer working days were lost in the year to April than in any other 12-month period for over 70 years. The number of stoppages in the year to April was 324, with 648,000 days lost.

The Government has taken steps to achieve a better balanced legal framework for industrial relations and has expanded training opportunities. Obstacles to the mobility of labour have also been reduced. For example, the rights of those leaving occupational pension schemes early have been improved and new arrangements for personal pensions introduced, both of which will reduce the pension disadvantage of changing jobs. Reforms in the housing market have been introduced to make it easier for people to move locations. A number of policies have been introduced to reduce the obstacles facing small firms and self-employment.

Inward Investment

Britain continues to win the lion's share of inward investment into the European Community (EC) despite a fall in the number of new projects due to the recession. The invest in Britain Bureau said on 15 July 1992 that Britain could be accounting for about a third of all incoming EC investment, and that Department of Trade and Industry figures show that overseas companies endorsed 332 investment projects in Britain during the 12 months to the end of March, compared with 350 the year before. United States and Japanese companies are channelling nearly 40 per cent of EC direct investment into Britain, while Germany and France are also investing heavily here. Malcolm Day, director of the bureau said that in future special emphasis would be put on medium-sized to small businesses, and Malaysia, Indonesia, Singapore and Hong Kong would be targeted over the next 18 months.

Investment in Common Wealth Developments

The biggest ever CDC disbursement, a |pounds~ 17 million loan, has just been made for major participation in Lesotho's Highlands Water Project, while another record sum, this time a realisation of |pounds~ 45 million (soon to be recycled in other projects), has come from the sale of an investment made in 1971 in the Hong Kong container operator, Modern Terminals Ltd. In 1991 the CDC backed a total of 105 new projects in 32 countries, either through loan or equity, benefiting a spread of programmes from seafood processing in Ghana to electricity generation in Anguilla, and making a loan to a corporation in the Philippines for the development of a gold mine.

New investments by CDC totalled a record |pounds~ 157.3 million last year. Almost two-thirds of this went to the private sector: a reminder of the British Government's own appreciation of private enterprise at home and overseas.

Yet less than half (|pounds~ 70 million) of the new investment was provided by the Government's aid programme. The remaining lb87.3 million was provided by profits from CDC's own portfolio of past investments. It would be hard to find a stronger argument for its investment policies.

Indeed, at the end of 1991, the CDC's investments amounted to lb1037.1 million, breaking the billion-poind barrier for the first time (an increase of lb79.8 million on the previous year).

Bank of England

The Bank of England is the central bank of the United Kingdom and has developed increasingly close ties with the Government since it was founded some 300 years ago. The Government is the Bank's most important customer and pays into its accounts all the country's tax revenue. Although owned by the nation, the Bank is not a Government department and is run as a completely separate organisation.

The Bank is responsible for implementing the Government's monetary policy in order to reduce the rate of inflation. It also takes responsibility for all the gold and foreign exchange operations carried out by the Government. By buying or selling sterling, the Bank is able to influence the pound's exchange rate against foreign currencies. The Bank invests the nation's foreign currency reserves - one of the world's largest investment portfolios - in major bond and money markets.

British Executive Service Overseas

British Executive Service Overseas (BESO) is an independent London-based organisation that provides skilled and experienced businessmen and women to public and private enterprises in developing countries that might find it difficult to afford commercial consultants. Set up in 1972 by the British Government, the Confederation of British Industry and the Institute of Directors, BESO celebrates its 20th anniversary this year. During the last two decades, it has provided more than 2000 advisers to over 80 countries. These advisers - mostly recently retired men and women, or people seconded from British industry or public service - are drawn from a wide range of professions and command wide-ranging skills.
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Publication:Economic Review
Date:Oct 1, 1992
Words:1896
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