UK vs US Economy, Essay Example

The economies of the United States and the United Kingdom are two of the most powerful economies in the world.  Historically the UK has always, since its origins, been a powerful European economic force.  Throughout recent history, it has maintained its status as a powerful European economic player and expanded its influence into the global economic network. The UK made history when it became the world’s first industrialized nation in the 18th century.  The UK continued to play a predominant role the global industrialized economy through the 19th century.  By the end of the 19th century, other countries had begun to industrialize as well and had begun to challenge the UK for dominance over the world’s economy.  The United States enjoyed a long history of expansion due to an abundance of natural resources.  In order to settle territory, the US offered incentives to foreign immigrants in the form of land grants.  This westward expansion phase began a massive surge of immigration from other nations that wanted to take advantage of the booming US economy. The United States economy continued to gain strength through the middle of the 20th century despite several recessions and the Great Depression of the 1930’s.  The United States economy has long attracted immigrants seeking a better life.  The United States today still has one of the world’s highest migration rates.  The UK and the US economies are integrated in many ways, and when an economic downturn affects one, the other feels it as well.  So it was with the recent economic crisis of 2008.

The United States and the UK are highly industrialized nations whose economies are heavily dependent on foreign trade.  It is estimated that the US exports $994.7 billion while it imports over $1.445 trillion.  The UK exports amount to $351.3 billion and imports are estimated to be $473.6 billion.  This leaves both countries with a gap in spending more than they are selling.  The inflation rate in the UK as of March was 3%, higher than the 2.1% inflation rate in the US.  Both the economies of the United States and the UK continue to play a major world in global economics.  The UK is a member of several trade organizations, including the European Union, British Commonwealth of Nations, Organization of Economic Co-operation and Development, and the World Trade Organization.  The United States is a member of trade organizations such as North American Free Trade Association, World Trade Organization, Organization for Economic Co-operation and Development, G-20, and the G-8 among others.   Today, these two powerful economies play an important role in global economic policy in the world. (cia.gov)

The U.S. economy is the largest in the world, with a $14.204 trillion gross domestic product, or GDP, in 2009.   The United Kingdom has the 6th largest GDP in the world, and the largest in the European Union.  Its GDP in 2009 was $2.646 trillion. The UK had a gross national savings of 11.9% (as a percentage of its GDP) as of 2009 which was slightly higher than the 10.955% that the US had.  Investment, as a percentage of GDP, was at 14.978% in the US in 2009, which was higher than the UK, which had an investment rate of only 13.655%.  The output gap in % of the potential GDP for both countries is currently negative, due to the recession.  For the UK, the gap is at -4.892% while the US is at -4.45%.

Both economies took a sharp decline during the 2008 economic crisis.  In the UK, “declining home prices, high consumer debt and the global economic slowdown combined to put the UK economy into a recession starting in the fall of 2008.”(cia.gov)  The US economy took a downward turn as well starting in the middle of 2008 due to “the sub-prime mortgage crisis, investment bank failures, falling home prices, and tight credit.” (cia.gov). The U.S. economy has been plagued by debt.  The U.S. has a national debt of over $9 trillion.  Household debt in the United States is at $11 trillion.  Unfunded Medicare and Social Security liability is a major problem as well.  High external debt and high trade deficits have all combined to create a serious deterioration in the United States net international investment position.  In addition, it has created a high percentage of unemployment.  The unemployment in the United States reached 9.7% in 2009.  The recession of 2008 was at the end of a 15 year era of growth for the UK economy.  During those years, the UK had one of the highest economic growth rates in the world, leading the economies of other European nations.  The recession in the UK has resulted in an unemployment rate of 7.8%, lower than that of the US.  The economic recession is evident from the 2009 GDP growth (in Constant Prices) for each country.  It was -4.385% for the UK in 2009, a drastic slump from when it was at +2.6 in 2007.  The US economy fared slightly better with a GDP growth of -2.73% in 2009 compared to +2.1% in 2007. (cia.gov).

On average, wages paid in both countries are high, giving the general population a high standard of living.  In US dollars, the UK per capita GDP for 2009 was $43,785.  In the US, the per capita GDP was $46,442, giving the average US citizen a slightly higher average wage.  The United States has a much larger population than the UK, giving it a much larger labor force.  IN 2009, the labor force in the US was estimated to be 151.4 million, including the unemployed.  In the UK, the labor force is only 31.25 million. There are differences in the demographics of the labor force participation rate.  In 2009 in the UK, men made up 69% of the labor force while women made up 72.9%.  In the US in 2009 men made up 69% of the labor force participation rate while women only accounted for 55.2 percent.  Compared to other countries, citizens of both the UK and the US live in relative ease, with only 14% living below the poverty line in the UK and only 12% in the US.  This is because both countries have a large middle class.  However, these statistics may be changing with the conditions created by the economic crash of 2008.

The economic turndown for both countries, however, had showed some signs of slowing, and even of recovery, by 2009.  The UK seems to be making a speedier recovery than the US.  In addition to having a lower percentage of unemployed, the country’s economy is growing faster than expected in 2010.   The Bureau of Labor Statistics in the US announced on its webpage that “non-farm business sector labor productivity increased at a 6.9% annual rate during the 4th quarter of 2009.”(bls.gov).   In addition, April of 2010 saw the median weekly earnings of its workers rise to 2.2% higher than in April of 2009.  The UK economy is showing signs that its recovery may be faster than was estimated previously.  Economists had expected the annual growth of 2010 to be between 1% and 1.5%.  However, the latest trends are signaling that the growth might be as high as 3.1%.  Due to the fall of the value of the British pound against the dollar, UK goods are now cheaper abroad, causing the UK manufacturing sector to have a rapid growth rate at the beginning of 2010.  The US has seen some benefits from the recession, including a reduction in its trade deficit and a higher rate of personal savings. The US created a financial stimulus package in January of 2009 to inject an additional $787 billion stimulus package to be used over 10 years to create jobs and help the economy recover.  Two-thirds was to be spent on additional spending and one-third on tax cuts.  By the end of 2010, two thirds of these funds will have been injected into the economy.  It waits to be seen how well the stimulus works to heal the US economy.  As of now, it appears that the UK is having an easier time recovering from the crisis than the US.  Still, both economies continue to maintain their roles as powerful economic forces in the world’s global economy.

References

Central Intelligence Agency. “The World Factbook.” Web.  15 Apr. 2010. Retrieved from www.cia.gov

EconomyWatch. “Gross National Savings (% of GDP) Data for All Countries.” Web. 15 Apr. 2010.  Retrieved from http://www.economywatch.com/economic-statistics/economic-ndicators/Gross_National_Savings_Percentage_of_GDP/

Trading Economics: Global Economics Research.  Web. 15 Apr. 2010.  Retrieved from http://www.tradingeconomics.com/World-Economy/Inflation-Rates.aspx

United KingdomLabour Market Statistics. Office of National Statistics. “Labour Market Statistics January 2010.” Web. 15 Apr. 2010.  Retrieved from http://www.statistics.gov.uk/pdfdir/lmsuk0110.pdf

UNData: A World of Information.  “Labour Force Participation Rate.” Web. 15 Apr. 2010.  Retrieved from http://data.un.org/Data.aspx?q=labour&d=GenderStat&f=inID%3A106