Economic Factors Affecting Uk Exports

The UK as the largest economy in Europe next to Germany, and has the fifth largest economy in the world in terms of market exchange rates. The UK is also one of the most globalized countries in the world. London, the capital of the UK, is one of the three major financial centers in the world, along with New York and Tokyo. Having grown every quarter since 1992, The UK economy has seen the longest period of sustained economic growth for more than 150 years.

Service industries are the most significant earner for the UK economy. Agriculture in the UK supplies roughly 60% of the total food demand of the nation. The oil, coal, and natural gas reserves are relatively high and account for about 10% of the GDP. Almost 70% of GDP in the UK is accounted for by private consumption.

The main trading partners for the UK include the European Union, US, Asia, Australia, the Middle East, Latin America, and Africa. The UK is the fifth largest export market for the US, and ranks fourth in the world in terms of volume of imports. In the past, imports have exceeded exports and the UK has run a current account deficit however, as of recently, the deficit is somewhat flat. The UK also has the third least barriers to trade and investment in the world.

The UK is a member of the European Union, but it has chosen to remain outside the Economic and Monetary Union. The majority of the UK population is opposed to the single currency because they feel the economy is doing well without any alliance. The UK is continuing with its original currency of the pound (GBP) while a large number of other European nations have adopted the Euro as their single currency.

If the UK were to join the Economic and Monetary Union could have both advantages and disadvantages.

Advantages:

1. A single currency should end currency instability in the participating countries by permanently fixing exchange rates. Because the Euro would have the enhanced credibility of being used in a large currency zone, it would be more stable against speculation than individual currencies are now. An end to internal currency instability and a reduction of external currency instability would enable exporters to project future markets with greater certainty. This will create a greater potential for growth.

2. Consumers would not have to change money when traveling and would encounter fewer hassles when transferring large sums of money across borders. It was estimated that a traveler visiting all twelve member states of the (then) EC would lose 40% of the value of his money in transaction charges alone.

3. Businesses would no longer have to pay hedging costs which they do today in order to insure themselves against the threat of currency fluctuations. Businesses, involved in commercial transactions in different member states, would no longer have to face administrative costs of accounting for the changes of currencies, plus the time involved. It is estimated that the currency cost of exports to small companies is 10 times the cost to the multi-nationals, who offset sales against purchases and can offer the best rates.

4. A single currency should result in lower interest rates as all European countries would be locking into German monetary credibility. The stability will force EU countries into a system of fiscal responsibility which will enhance the Euro's