Other State Department Archive Sites

The State Department web site below is a permanent electronic archive of information released online from January 1, 1997 to January 20, 2001. Please see www.state.gov for current material from the Department of State. Or visit http://2001-2009.state.gov for information from that period. Archive sites are not updated, so external links may no longer function. Contact us with any questions about finding information. NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein.

Country Commercial Guides FY 2000: United Kingdom Report prepared by U.S. Embassy London, Released July 1999 Note*

II. ECONOMIC TRENDS AND OUTLOOK

-- Major Trends

The U.K. is entering its seventh consecutive year of economic expansion, although growth has slowed in concert with the economies of other EU countries. The high sterling exchange rate against the dollar and the Euro is a contributing factor. Real GDP growth is expected to remain below 2% in 1999 and in 2000.

The Labour Government allows market forces rather than social programs to drive the economy. In a further disengagement from economic control, the Bank of England was made independent of the Treasury, and given sole responsibility for setting interest rates. The Treasury has adopted new controls on public spending in advance of any formal move to join the European Economic and Monetary Union (EMU), and any recommendation to adopt the Euro currency. This will happen during the life of the next Parliament, after May 2002, if Labour is reelected, and if the result of a promised referendum on the Euro permits the Government to proceed.

Information on the U.K.'s economic performance and prospects is published in the Bank of England Quarterly, and similar data can be obtained from many of the major U.S. banks and investment houses operating in London.

-- Principal growth sectors:

The service sector, including banking, insurance and investment management, now accounts for approximately 70% of the U.K.'s GDP. In manufacturing, productivity has continued to increase, largely due to a tax regime that supports and encourages capital investment and innovation. Public-sector procurement policies seek best value and best practice regardless of the bidders' national origin, and outsourcing of public services is encouraged at central and local government levels.

National legislation on Britain's infrastructure and the environment, privatization of state-owned assets, health care reform, and private-public partnerships have created business opportunities in Britain that equal those offered by the private sector. U.S. exporters, investors and management companies participate in public sector and private sector ventures and partnerships in virtual equality to British firms, and have established a route via Britain to the European single market.

Britain's telecommunications sector is among the most liberal in Europe. The fully installed cable and cellular networks show limited additional opportunities for the equipment manufacturers, but excellent prospects for innovative service providers. The U.K. health care sector, especially as the state-funded National Health Service (NHS) is restructured, presents significant opportunities for U.S. suppliers of cost-saving equipment and services. Growing intolerance of environmental pollution has prompted higher EU and national environmental standards, and a more rigorous enforcement of existing regulations. The introduction of U.S.-developed remedial technologies has placed our environmental firms at a distinct competitive advantage in this market.

The U.K. is a major market for U.S. agricultural products. The United States exported about $1.3 billion in agricultural products to the United Kingdom in 1998. In addition, the U.S. exported around $240 million in forestry products and $86 million in seafood to the U.K. in 1998.

The U.K. Ministry of Defence (MoD) admits U.S. companies as potential suppliers in most procurement competitions, as prime contractors, as joint-venture partners or as major sub-contractors and suppliers to the U.K. prime contractors.

-- Government role in the economy:

The British economy is largely shaped by market forces, with independent regulatory bodies providing additional direction in those sectors where private individuals are the principal users of the product or service. The regulated industries include the privatized utilities: telecommunications, electricity, water and gas supply, and passenger rail transportation. Financial services are regulated by the new Financial Services Authority, and consumer credit by the Office of Fair Trading.

Government initiatives include continued privatization, deregulation, and support for competition. Intervention is still evident, however, in some areas such as support for coal versus gas for electricity generation, the adoption of the EU's Social Chapter (statutory leave, minimum wage and maximum working hours legislation). As further evidence of economic non-intervention, the U.K. Treasury no longer participates with the Bank of England in the process of setting the prime bank interest rate. Further, the Treasury is committed to policies that reduce public debt as a percentage of GDP, in order to produce a budget surplus in each of the next three fiscal years.

-- Balance of payments:

The U.K. typically runs a deficit in its visible balance of trade, which is largely offset by a surplus in its trade in services. The trade balance deterioration of 1997 and early 1998 in response to the Asian financial crisis, and the appreciation of sterling, principally against European currencies, have been partly offset by the reduced cost of imported components and raw materials. The annual U.K. current account deficit is approximately 1.5% of GDP.

-- Infrastructure:

Private sector production, transportation, warehousing, communications, and distribution facilities in the U.K. are adequate, although some of the physical assets employed show the need for repair and replacement. Much of the responsibility for the public sector infrastructure of the U.K. has been transferred to the private sector and to independent executive agencies that are accountable to government departments.

To supplement government investment, Public-Private Partnerships (PPP) and Private Finance Initiative (PFI) schemes that create viable business entities from public assets at minimal cost to the government have been developed. These require the transfer of ownership and profit potential, the transfer of risk to the private-sector operator, and acceptance of no recourse to the government if the business fails.

Although the government has a lesser role in directing the economy and a correspondingly reduced responsibility for industrial and economic performance, it continues to exhort the business community to prepare for the future. Sponsorship of the planned year-long millennium celebrations and safeguards against the effects of the millennium bug are high-profile business issues that have been publicly addressed by Ministers.

For Year 2000 (Y2K) IT compliance, industry and government have combined to highlight the problem and solutions. Helplines, infocenters, websites and taskforces have proliferated, sparking a mini sales boom of Y2K-compliant systems. According to industry observers, the IT systems in critical applications in Britain are inherently Y2K compliant, or can be made compliant through software updates.