Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
As of January 1, 2021, the UK finished its transition period out of the European Union single market and customs union in the split known as Brexit. However, the impact of Brexit on the economy has been rivalled by the impact of COVID on the economy; in 2020, Brexit and COVID-19 combined produced a nearly 10 percent decline in the UK’s GDP, the largest drop among OECD countries.
The economy is undergoing a historic realignment as the decision to leave the EU required the UK to reestablish itself as an independent economy, while at the same time dealing with the COVID-19 pandemic. The UK had led Europe and most other countries in deploying vaccines, and despite some setbacks, the country has fully reopened as of July 2021. Due to this reopening, GDP growth was positive for the fifth consecutive month in June. While posting the fastest growth rate among G7 countries in the second quarter of 2021, the UK’s economy remains 4.4 percent below its pre-COVID-19 level. This reflects a combination of the UK’s early exposure to the Delta variant of COVID-19 and Brexit-related trade frictions. Analysts expect growth to continue, provided the current rise in COVID-19 cases remains under control and restrictions are not renewed. Full year 2021 growth is expected to be about 6.5 percent followed by 5 percent in 2022.
The United Kingdom (2020 GDP of $2.7 trillion) is a major international trading power, with the fifth-largest economy in the world according to the World Bank. While the United Kingdom is geographically relatively small (about the size of Oregon), it has a population of more than 66 million people. Moreover, despite the challenges and uncertainty posed by the effects of Brexit and COVID-19, the UK remains a critical market for American exports of goods and services and a key destination of U.S. foreign direct investment. Highly developed, sophisticated, and diversified, the UK is the second largest economy in Europe as of 2020. Ranking in seventh place as the top export destination for American goods, the UK is also the number one trading partner of the United States for services. However, following the exit from the EU Single Market and Customs Union, the UK has experienced increased border costs that have weighed on foreign trade.
U.S. exports of goods and services to the UK reached $109.2 billion in 2020.
Major categories of U.S. exports include Aerospace Products, Agricultural Products, Cyber Security, Medical Equipment, New Build Civil Nuclear, certain consumer goods (such as Pet Products), Smart Grids, Sustainable Construction, and Travel & Tourism.
Pre-COVID, the UK ranked third in overall number of people arriving to the United States (behind Canada and Mexico, respectively), and thus the UK was the number one overseas market for travel to the United States, with four to five million UK travelers visiting the United States each year and contributing over $12 billion to the American economy annually. However, 2020 and 2021 saw a dramatic decline in tourism and business travel to the United States due to COVID-related travel restrictions.
The U.S.-UK investment relationship is the largest in the world, with cumulative bilateral stock in direct investment valued at more than $1.375 trillion in 2020. Nearly three million jobs, approximately 1.5 million in each country, have been created over the years as a result of this investment.
More than 7,500 U.S. firms have a presence in the United Kingdom, which is also the top location in Europe for U.S. regional headquarters covering Europe, the Middle East, and Africa. A major international financial, media, and transportation hub, London is also headquarters to the European Bank for Reconstruction and Development (EBRD).