The United Kingdom In-Depth PESTLE Insights: Country Profile Series

The United Kingdom
In-depth PESTLE insights
Country Profile Series
Report Code: ML00002-031

Published: October 2019
1.1. Catalyst
This profile analyzes the political, economic, social, technological, legal and environmental (PESTLE) structure of the
UK. Each factor is explored via four parameters: current strengths, current challenges, future prospects, and future
risks.
1.2. Summary
1.2.1. Key findings
The UK has a strong democratic system, but the ongoing chaos over Brexit remains an area of
concern
The UK adheres to a democratic, parliamentary form of governance known as the Westminster system that calls for
the distribution of power between the executive branch led by the prime minister, the bicameral legislature, and the
judiciary, with a system of checks and balances. As the World Bank's governance indicators illustrate, the UK is one of
the most successful nations in terms of the application of voice and accountability (93.6 percentile), the rule of law
(91.8), control of corruption (93.3), government effectiveness (87.98), and regulatory quality (96.15) in 2018.
In March 2017, Prime Minister Theresa May triggered Article 50 of the Lisbon Treaty, which started the proceedings
relating to the UK’s exit from the EU, while setting a two-year formal deadline for the country to negotiate a deal with
the EU. Initially the deadline for Brexit was March 29, 2019, which has been extended to October 31, 2019. The UK
parliament has not ratified any of the Brexit packages Theresa May put forward, which finally resulted in her
resignation on June 7, 2019. Following the resignation of May, Boris Johnson of the Conservative Party was appointed
as the new prime minister of the UK. The new prime minister has set a ‘do or die’ approach for Britain’s exit on
October 31, 2019. Meanwhile, in September 2019 a law was approved by the parliament that stops Britain exiting the
EU without a deal, implying that the deadline for Brexit can be extended further if no deal is reached. On October 17,
2019, EU and the UK Prime Minister struck a new Brexit deal which however was not approved by the UK parliament,
following which the UK Prime Minister sent an unsigned letter to the EU for a further three months extension of the
Brexit deal. As of October 23, 2019, the UK is unlikely to have a Brexit by October 31, 2019 and the delay over Brexit
remains unclear. The chaos has already led to a slowdown in the economy in 2019.
The UK is a highly competitive economy, but the trade cost of a botched Brexit is a concern
The UK is an open and competitive economy, and international businesses view its political and economic institutions
favorably. The country has a robust science base and boasts of strong high tech manufacturing capabilities in
aerospace, defense and automobiles. The UK’s strength lies in knowledge economy sectors such as banking, software,
and pharmaceuticals. According to the World Economic Forum’s Global Competitiveness Report 2018, the UK ranked
eighth out of 140 countries. The country ranked fourth in the parameter of ‘innovation ecosystem’ and seventh in
business dynamism, innovation capability, and entrepreneurial culture out of 140 nations in 2018. Considered the
doorway to the rest of the EU, the UK has a favorable business environment, skilled professionals, a central time zone
PESTLE COUNTRY ANALYSIS REPORT: THE UNITED KINGDOM ML00002-031/Published 10/2019
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perfectly positioned between the east and the west, a flexible regulatory environment, and a leading global financial
center in London.
Members of the EU have 40 agreements with about 70 countries through which they receive preferential treatment.
In the situation of a no-deal Brexit or in the absence of a proper deal with other countries, the UK is expected to lose
preferential treatment status and have to export using WTO’s most-favored-nations tariffs. The EU accounted for
almost half of the total merchandise exports (US$450bn in 2018) of the UK. In the situation of a no-deal Brexit the UK
would lose preference in the EU markets, and the loss would amount to almost US$16bn, which is equivalent to
approximately 7% of the overall exports to the EU, according to UNCTAD estimates that had taken into account only
the increase in the tariffs. Moreover, border controls, disruption of production networks and the non-tariff barriers
are expected to add to the losses.
The country has strong education and health sectors, but income inequality is still apparent
The UK has a quality educational infrastructure and attracts students from all over the world. Qualifications obtained
from UK institutions are recognized and respected the world over. In The Times Higher Education World University
Rankings 2019, six universities from the UK were in the world's top 30. The rankings are based on teaching, research,
knowledge transfer, and international outlook. The UK’s healthcare system is one of the most successful social
ventures in the world. This is due to the presence of advanced healthcare infrastructure and private sector
involvement. The UK’s public expenditure on health has traditionally been high, which has helped in the maintenance
of quality and efficiency.
Rising inequality is a concern. According to the OECD, the UK’s Gini coefficient (a measure of income inequality) stood
at 0.36 compared to the OECD average of 0.35 in 2017. A score of zero corresponds to complete equality while a score
of one corresponds to complete inequality. Inequality in the UK is higher than France (0.29 in 2016), Germany (0.29 in
2016) and the Netherlands (0.28 in 2016). In this regards, the UK ranks among countries witnessing the fastest rise in
inequality. The country’s poverty rate measured as the ratio of the number of people whose income falls below the
poverty line, stood at 0.12 in 2017, which is also higher than France (0.08 in 2016), Germany (0.1 in 2016) and the
Netherlands (0.08 in 2016). The government has been forced to undertake prudent fiscal measures to strengthen
public finances, which is expected to increase income disparity. Inequality creates political, social and economic
challenges and stifles upward social mobility. Taxes and benefits must be reformed to challenge the increase in
inequality.
The country has created scope for the new industries, but rising cyber-attacks is a matter of
concern
In November 2017, the government unveiled a new industrial strategy to boost economic productivity and embrace
the opportunities presented by technological change. The strategy aims to make the country the most innovative
nation in the world by 2030 and the government is encouraging the use of electric vehicles through a £400m
(US$512.82m) infrastructure investment, a £1.0bn (US$1.28bn) digital infrastructure investment, and a £20.0bn
(US$25.64bn) fiber network investment.
In October 2018, the National Cyber Security Centre (NCSC) warned Britain of a Category 1 life threatening cyber-
attack. The agency repels at least 10 attempted cyber-attacks per week in the UK. Since its inception in 2016, the
center’s agency has dealt with 1,167 cyber incidents. According to the Federation of Small Businesses (FSB), a cyber-
crime has been committed against one out five small firms during the period from January 2017 to January 2019.
Small businesses are subject to around 10,000 cyber-attacks per day in the UK, which is estimated to cost £4.5bn

(US$5.8bn). Thousands of small businesses are victims of phishing attempts, and the incidence of malware, fraudulent
payment requests and ransom-ware has become very common.
The country has an effective regulatory environment for doing business; however, traditional
liberties are under threat
An effective regulatory environment, in which companies can conduct business without too many regulatory hurdles,
is important for a country’s growth. It takes 4.5 days to start a business in the UK, compared to the Organization of
Economic Co-operation and Development (OECD) average of 9.3 days, according to the World Bank’s Doing Business
Report of 2019. The number of days taken to enforce a contract is 437, again lower than the OECD average of 582.4.
In the World Economic Forum’s Global Competitiveness Report of 2018, the UK ranked 11th out of 140 countries in
the parameter of efficiency of legal framework in challenging regulations. According to Paying Taxes 2018, the UK’s
total tax rate (aggregate of profit taxes, labor taxes and other taxes) was 30.7%, lower than the EU and EFTA average
of 39.6%. The time taken to comply with taxes is some 110 hours, lower than the EU&EFTA average of 164 hours. A
low tax burden and low compliance costs make a country more investment friendly.
In May 2016, the Immigration Act 2016 came into full effect. The focus of the law is punitive measures on illegal
migration. Property owners found to be renting their premises to illegal immigrants will face criminal charges, as will
any employers hiring illegal migrants. If a person is not deemed to have permission to stay in the country, their bank
account and driver’s license will be seized. According to a report published in May 2019 by Social Market Foundation,
a British independent think tank, illegal migration in the UK is expected to rise after the country leaves the EU, as
closing legal migration routes will encourage more illegal immigration.
The UK has a strong global influence with regards to environmental issues, but air pollution is a
cause for concern
With its position as an industrialized global power and a member of the G8, the UK has a leadership role to play in
global efforts towards sustainable development and environmental protection. The UK has close ties with a number of
nations and through its influence in the Commonwealth, has the ability to obtain commitments from a number of
developing countries unwilling to sacrifice economic growth for environmental gain.
The level of air pollution in London is the highest in the UK. Cities such as Manchester, Glasgow and Birmingham also
have dangerous levels of NO2. According to the Royal Colleges of Physicians and of Pediatrics and Child Health, as of
2017, around 40,000 early deaths a year occurred due to air pollution. According to Defra National Statistics Release
on Air Quality, over the last decade (2009–2018), urban PM2.5 pollution in the UK has exhibited a declining trend;
however, in the last four years (2015–2018) it had remained almost stable.
1.2.2. PESTLE highlights
Political landscape
 The UK is one of the most prosperous and influential nations in the world and has a large role to play on
the international stage. It is one of the five permanent members of the UN Security Council, one of the
founding members of the North Atlantic Treaty Organization (NATO), and a member of the G8.
 Following the resignation of Theresa May in June 2019, Boris Johnson was appointed the new prime
minister of the UK in July 2019.

 In September 2019 a law was approved by the parliament that stops Britain exiting the EU without a
deal, implying that the deadline of Brexit can be extended further if no deal is reached.
 Amid the Brexit chaos, the government of the UK has committed to funding the healthcare of the
180,000 UK nationals residing in the EU for six months if the UK leaves the EU without a deal.
Economic landscape
 The economic growth rate averaged 2.45% during 2013–2015 and slowed down to an average of 1.67%
during 2016–2018. Public debt is high in the UK and remains a cause for concern.
 According to the United Nations Conference on Trade and Development Investment 2019 report, inward
foreign direct investment (FDI) inflow stood at US$64.49bn in 2018, down from US$101.24bn in the
previous year.
 As of 2018, the government deficit stood at 1.53% of GDP, down from 8.07% in 2012, when it widened
due to government-funded bailouts during the financial crisis. The UK’s relatively swift recovery helped it
raise tax receipts since 2014.
Social landscape
 The UK’s total healthcare expenditure stood at US$254.16bn or 9.7% of GDP in 2017, according to
MarketLine. Doctors per 1,000 population stood at 2.9 in 2018, lower than France (3.4). Nurses per 1,000
citizens stood at 7.8 in 2018, also lower than France (10.8).
 According to data released by the government, the number of children in absolute poverty rose by
200,000 to 3.7 million in 2017–2018.
 In December 2018, the UK government amended its immigration policy and ended special treatment for
European Union nationals, effective post Brexit.
Technological landscape
 According to MarketLine, total expenditure on R&D stood at US$44.32bn in 2017, an increase from
US$42.66bn in 2012. Business expenditure on R&D in the UK also increased to EUR26.29bn (US$29.54bn)
in 2017 from EUR21.09bn (US$27.04bn) in 2012, according to Eurostat.
 According to the Federation of Small Businesses (FSB), a cyber-crime has been committed against one
out five small firms during the period from January 2017 to January 2019. Small businesses are subject to
around 10,000 cyber-attacks per day in the UK, which is estimated to cost £4.5bn.
 The number of patents received by the country was 7,552 in 2018, higher than France (6,988) but below
that of Germany (17,433), and Japan (50,020), according to MarketLine.
Legal landscape
 In the Global Competitiveness Index, the UK ranked 12th in competitiveness in 2018. The country’s rank
was ahead of Belgium (22nd) and France (31st).
 The government cut the rate of corporate tax to 20% on April 1, 2015. The rate was further reduced by
1% to 19% effective April 1, 2017. Since then the rate has been unchanged, as of September 2019.

 According to the OECD’s FDI Restrictiveness Index of 2018, the restrictions in foreign investment in the
UK are higher than in Germany, Greece, Denmark and Belgium.
Environmental landscape
 Emphasizing more on issues related to climate change, the government of the UK amended its target in
June 2019 to reduce emissions to zero by 2050 from its earlier held target of 80% reduction.
 CO2 emissions in the UK came down from 502.4 million tonnes in 2010 to around 379.15 million tonnes
in 2017, declining at an average annual rate of 2.9% during the period.
 According to MarketLine, the industry value of the UK renewable energy market was US$22.28bn in
2018, representing a compound annual growth rate (CAGR) of 16.27% during 2014–2018.
1.2.3. Key fundamentals
Table 1: The UK – Key Fundamentals, 2016–2023f
2016 2017 2018 2019f 2020f 2021f 2022f 2023f

GDP, constant 2010 prices (US$ tn) 2.77 2.82 2.86 2.89 2.93 2.98 3.02 3.07
GDP growth rate (%) 1.79 1.82 1.40 1.27 1.33 1.55 1.56 1.59
GDP, constant 2010 prices, per capita

42,167.87 42,681.63 43,008.49 43,291.57 43,616.28 44,053.88 44,513.85 45,004.61
(US$)
Inflation (%) 1.01 2.56 2.29 1.87 2.04 2.05 2.04 2.04
Exports, total as a percentage of GDP 28.34 30.24 30.67 31.04 31.31 31.62 31.90 32.20
Imports, total as a percentage of GDP 31.67 32.22 31.91 32.35 32.66 33.01 33.29 33.60
Mid-year population (millions) 65.65 66.04 66.45 66.86 67.24 67.60 67.95 68.28
Unemployment rate (%) 4.90 4.40 4.10 4.25 4.43 4.34 4.26 4.20
Mobile penetration per 100 people 119.98 119.63 120.10 120.56 121.03 121.50 121.97 122.45
Source: Country Statistics, MarketLine MARKETLINE

Table of Contents
1.1. Catalyst 2
1.2. Summary 2
1.2.1. Key findings 2
1.2.2. PESTLE highlights 4
1.2.3. Key fundamentals 6
2. KEY FACTS AND GEOGRAPHIC LOCATION 15
2.1. Key facts 15
2.2. Geographical location 16
3. PESTLE ANALYSIS 17
3.1. Summary 17
3.2. Political analysis 18

3.2.1. Overview 18
3.2.2. Current strengths 18
3.2.3. Current challenges 19
3.2.4. Future prospects 19
3.2.5. Future risks 19
3.3. Economic analysis 22

3.3.1. Overview 22

3.4. Social analysis 30

3.4.1. Overview 30

3.5. Technology analysis 34

3.5.1. Overview 34

3.6. Legal analysis 37

3.6.1. Overview 37

3.7. Environmental analysis 41

3.7.1. Overview 41

4. POLITICAL LANDSCAPE 44
4.1. Summary 44
4.2. Evolution 44
4.2.1. Pre-1950s 44
4.2.2. 1950–1990 45
4.2.3. 1991–2019 45
4.3. Structure and policies 48

4.3.1. Key political figures 48
4.3.2. Structure of government 48
4.3.3. Center/federal 48
4.3.4. State/provincial 49
4.3.5. Key political parties 49

4.3.6. Composition of legislature 50
4.3.7. Key policies 51

4.4. Performance 52
4.4.1. Governance indicators 52
4.5. Outlook 53
5. ECONOMIC LANDSCAPE 54
5.1. Summary 54
5.2. Evolution 54

5.3.1. Financial authorities and regulators 55
5.3.2. Stock markets and derivatives 55
5.3.3. Insurance 56
5.4. Performance 56
5.4.1. GDP and growth rate 56
GDP composition by sector 58
Services 61
5.4.2. Fiscal situation 62
5.4.3. Current account 62
5.4.4. Exports and imports 62
5.4.5. International investment position 63
5.4.6. Monetary situation 64
5.4.7. Employment 65
5.5. Outlook 65
6. SOCIAL LANDSCAPE 66
6.1. Summary 66
6.2. Evolution 66

6.3.1. Demographic composition 67
6.3.2. Education 68
6.3.3. Healthcare 69
6.4. Performance 70
6.4.1. Healthcare 70

6.4.2. Education 70
6.5. Outlook 71
7. TECHNOLOGICAL LANDSCAPE 72
7.1. Summary 72
7.2. Evolution 72

7.3.1. Intellectual property 72
7.4. Performance 73
7.4.1. Opportunity sectors 73
7.5. Outlook 74
8. LEGAL LANDSCAPE 75
8.1. Summary 75
8.2. Evolution 75

8.3.1. Structure of the judicial system 75
8.3.2. Tax regulations 75
8.4. Performance 76
8.4.1. Effectiveness of the legal system 76
8.5. Outlook 76
9. ENVIRONMENTAL LANDSCAPE 77
9.1. Summary 77
9.2. Evolution 77

9.3.1. Environmental regulations 77
9.4. Performance 77
9.4.1. Environmental impact 77
9.4.2. The renewable energy market 78
9.5. Outlook 78

10. APPENDIX 80
10.1. Ask the analyst 80
10.2. About MarketLine 80
10.3. Disclaimer 80

List of figures
Figure 1: Map of the UK, 2019 16
Figure 2: Real GDP and Exports Growth, 2016 Q1 – 2019 Q2 24
Figure 3: The UK, Labor Productivity, 2000 Q1–2019 Q1 25
Figure 4: The UK – Total Capital Ratio (%), 2014 Q1–2019 Q1 26

Figure 5: The UK – Total Capital of Banks (EUR Billions), 2014 Q1– 2019 Q1 26
Figure 6: The UK – Government Deficit (%), 2010 and 2018 27
Figure 7: The UK – Ratio of Median House Price to Median Gross Annual Residence-based
Earnings by Country and Region, 2018 28
Figure 8: The UK – Household Debt (% of Net Disposable Income), 2018 29
Figure 9: The UK – Old Age Dependency Ratio (%), 1950, 1975, 2000, 2015, 2025, 2050 and
2075 32
Figure 10: The UK – Gini Coefficient and Relative Poverty, 2014 33

Figure 11: The UK – Government Funding of R&D (%), 2016 36
Figure 12: The UK – Product Market Competitiveness, 2018 39
Figure 13: The UK – FDI Restrictiveness Index, 2018 40
Figure 14: Environmental targets 43
Figure 15: The UK – Political Events Timeline 47
Figure 16: The UK – Key Political Figures, 2019 48
Figure 17: The UK – Composition of Legislature, 2017 51
Figure 18: The UK – Historical GDP Growth (%), 2007–2018 55
Figure 19: The UK – GDP and GDP Growth Rate (US$ Trillion), 2013–2023f 57
Figure 20: The UK – Economic Contribution to GDP by Sector (%), 2018e 58
Figure 21: The UK – Agricultural Output (£ Billion), 2013–2018e 59
Figure 22: The UK – Industrial Output (£ Billion), 2013–2018e 60

Figure 23: The UK – Service Sector Output (£ Trillion), 2013–2018e 61
Figure 24: The UK – External Trade Position (US$ Billion), 2013–2018 63
Figure 25: The UK – Consumer Price Index and Consumer Price Index-Based Inflation (%), 2013–
2023f 64
Figure 26: The UK – Unemployment and Unemployment Rate (Millions/%), 2013–2023f 65
Figure 27: The UK – Population by Age and Gender (as Percentage of the Total Population),
2018e 67
Figure 28: The UK – Major Religions (%), 2011 68

Figure 29: The UK – Total Healthcare Expenditure (US$ Billion), 2008–2017 70
Figure 30: The UK – Public Education Expenditure (US$ Billion), 2007–2016 71

Figure 31: The UK – Internet Users (Millions/% of Total Population), 2013–2018e 74
Figure 32: The UK – Carbon Dioxide Emissions (Million Metric Tons) and Growth (%), 2010–201778

List of Tables
Table 1: The UK – Key Fundamentals, 2016–2023f 6
Table 2: The UK – Key Facts, 2019 15
Table 3: The UK – Analysis of the Political Landscape 18
Table 4: The UK – Analysis of the Economy 22
Table 5: The UK – Analysis of the Social System 30
Table 6: The UK – Analysis of Technological Landscape 34
Table 7: The UK – Analysis of the Legal Landscape 37
Table 8: The UK – Analysis of the Environmental Landscape 41
Table 9: The UK – Comparative Performance on Receipt of Patents, 2012–2018 73

Key Facts and Geographic Location
2. Key Facts and Geographic Location
2.1. Key facts
Table 2: The UK – Key Facts, 2019
Country and capital

Full name The United Kingdom of Great Britain and Northern
Ireland
Capital city London
Government
Government type Constitutional monarchy and Commonwealth realm
Head of state Queen Elizabeth II
Head of government Prime Minister Boris Johnson (Conservative) (since
July 24, 2019)
Population (2018) 66.45 million
Currency British pound (£)
GDP per capita, PPP (2018) US$45,720
Internet domain .uk
Demographic details
Life expectancy (2018) Total population: 80.9 years
Men: 78.7 years
Women: 83.2 years
Ethnic composition (2011 est.) White (87.2%), black/African/Caribbean/black British

(3%), Asian/Asian British: Indian (2.3%), Asian/Asian
British: Pakistani (1.9%), mixed (2%), other (3.7%)
Major religions (2011 est.) Christian (59.5%), Muslim (4.4%), Hindu (1.3%),
other (2%), none (25.7%), unspecified (7.2%)
Country area 243,610 km2
Language English
Exports Manufactured goods, fuels, chemicals; food,

beverages, and tobacco
Imports Manufactured goods, machinery, fuels, and

foodstuffs
Source: CIA – The World Factbook MARKETLINE

Key Facts and Geographic Location
2.2. Geographical location

The country is located in Western Europe, between the North Atlantic Ocean and the North Sea, northwest of France.
Figure 1: Map of the UK, 2019

PESTLE Analysis
3. PESTLE Analysis
3.1. Summary
As one of the largest economies in the world, the UK is a significant economic and political force. Its membership of
the UN Security Council, NATO, and the G8 – alongside strong links with its former colonies through the
Commonwealth and robust cultural and security ties with the US – place it in a unique position within the global
community. However, the Brexit vote has isolated the country to an extent. The task for Prime Minister May was to
oversee the smooth withdrawal of the UK from the EU. In the June 2017 general elections, she lost her majority and
retained only 317 out of 650 seats in the House of Commons. The situation meant she was forced to form a coalition
government with the DUP. In June 2019, Theresa May resigned, and in July 2019 Boris Johnson was appointed the new
prime minister of the UK.
favorably. The country has a robust background in science and boasts strong high-tech manufacturing capabilities in
the areas of aerospace, defense, and automobiles. The UK’s strength lies in its knowledge economy sectors such as
banking, software, and pharmaceuticals.
According to the OECD, the UK’s old age dependency ratio will rise from 28.78% in 2018 to 40.52% by 2050. The
economic support ratio fell after the global financial crisis as more people were unemployed, resulting in less revenue
from worker taxes.
The UK is renowned for the quality of its R&D infrastructure. According to MarketLine, total expenditure on R&D stood
at US$44.32bn in 2017, an increase from US$42.66bn in 2012.
The legal system is organized, transparent, and efficient. This makes for an environment that is conducive to business,
as legislation is passed in a practical manner, with all stakeholders in mind. Legislation is enforced in a fair manner by a
number of agencies established to monitor specific areas. The government has brought in general tax-avoidance rules
to make evasion difficult.
The UK has amended its emissions target to 0% by 2050 from its earlier held target of 80% by 2050.

PESTLE Analysis
3.2. Political analysis
3.2.1. Overview
The UK’s stable system of governance ensures that there is remarkable consistency in its policies. Following World
War II, the UK emerged as a major economy. With the Scottish National Party's landslide victory in Scotland in the
2015 elections, there is a high possibility of an increase in devolution. In June 2016, Cameron stepped down as prime
minister. Following his resignation, former home secretary May succeeded him. However, in the June 2017 general
elections, she lost her parliamentary majority and was forced to form a coalition government with the DUP. The
Conservatives retained 318 out of 650 seats in parliament, losing 33 seats from the previous election. The UK
parliament decided not to ratify any of the Brexit packages Theresa May put forward, which resulted in her
resignation on June 7, 2019. In July 2019, Boris Johnson took over from Theresa May and became the new prime
minister of the UK.
Table 3: The UK – Analysis of the Political Landscape
Current strengths Current challenges
▪ Strong democratic setup and effective governance ▪ Weakening relations with the EU
▪ Strong position in global politics
Future prospects Future risks
▪ The SNP’s surge in popularity

▪ Stronger ties with China ▪ Brexit and its uncertain implications
Source: MarketLine MARKETLINE
3.2.2. Current strengths
Strong democratic setup and effective governance

The UK adheres to a democratic, parliamentary form of governance known as the Westminster system that calls for
the distribution of power between the executive branch led by the prime minister, the bicameral legislature, and the
judiciary, with a system of checks and balances. As the World Bank's governance indicators illustrate, the UK is one of
the most successful nations in terms of the application of voice and accountability (93.6 percentile), the rule of law
(91.8), control of corruption (93.3), government effectiveness (87.98), and regulatory quality (96.15) in 2018.
Strong position in global politics

The UK is a major power in global politics by virtue of its permanent membership of the UN Security Council, its
membership of the G8, NATO, and the legacy of the British Empire. The UK also has considerable influence in

PESTLE Analysis
multinational organizations such as the International Monetary Fund (IMF) and the World Bank. Successive decades of
solid economic growth, initially built on the industrial sector and now largely driven by the services industry, have
ensured its firm establishment as a global business hub and economic power.
3.2.3. Current challenges
Weakening relations with the EU

Tensions between Europe and the British policymakers widened during the Eurozone debt crisis to the extent that the
UK has not been able to mend its relationship with its EU counterparts. The government’s anti-immigration rhetoric
also does little for relations. The Brexit referendum on June 2016, when Britain voted in favor of leaving the EU,
marked the end of a 43 year regional relationship.
Tensions were intensified when in August 2016, Germany stated that the UK will not receive any “special” treatment
in trade negotiations. Moreover, it will not be able to secure privileges that other ex-EU members like Switzerland and
Norway received. In December 2018, the UK government amended its immigration policy that gave special treatment
to European Union nationals. Under the new rules, skilled workers from EU and non-EU countries will be treated alike.
Skilled workers coming to Britain will have to be sponsored by a company.
3.2.4. Future prospects
Stronger ties with China

The visit by Chinese Premier Li Keqiang to the UK in June 2014 ushered in a period of better Sino–UK ties. The
emergence of new, low-cost centers of production, and China’s rapid economic growth, made it important for the UK
to cooperate or risk heavy economic losses.
Relations between the two nations cooled in 2012 when Prime Minister Cameron visited the Dalai Lama, irking the
Chinese government. This resulted in a reduction of Chinese investment in the UK. Relations improved considerably
after the Chinese Premier’s visit in 2014 and resulted in investment deals worth £14bn (US$18.67bn) in the fields of
infrastructure, financial services, and clean energy. Chinese President Xi Jinping’s visit to the UK in October 2015 was a
success and in a November 2016 meeting with a Chinese delegation Prime Minister Theresa May and Chancellor
Hammond called this a golden period in Sino–UK relations. Chinese investment in the UK is thriving and China
remained the top investor in the UK in 2018 despite Brexit uncertainty. As part of the national manufacturing plan,
China has increased investment in UK technology, infrastructure, and healthcare. In August 2019, the UK Minister of
Investment led a strong delegation of UK business leaders from the sectors of manufacturing, transport, technology
and education to meet potential Chinese investors to boost bilateral trade and investment between both nations
post-Brexit.
3.2.5. Future risks

PESTLE Analysis
Terrorism
The UK’s involvement in the war in Afghanistan and Iraq has negatively impacted the country. The July 7, 2005,
bombings in London brought the capital to a standstill, and public threats issued by extremist groups such as Al-Qaeda
are an indication of the constant dangers posed to the public. Several failed terror plots have put the government and
public on edge.
In March 2010, the UK's intelligence and security service said that terror threats linked to Pakistan remained their
primary area of concern. According to a security committee, some 15% of the work of the security service is now
focused on East Africa, Somalia in particular, due to an increasing number of extremists visiting the area for the
purpose of terrorist training. The committee said the UK faced a range of covert threats to its security and identified
Al-Qaeda as presenting the most significant risk. In a report titled CONTEST The United Kingdom’s Strategy for
Countering Terrorism, published by the Secretary of State for the Home Department in July 2016, the government
highlighted threats to the UK’s interests from the IS branches in Libya and Egypt. In February 2015, the Counter
Terrorism and Security Act was given the royal assent. The act makes provisions for blocking the re-entry of any citizen
suspected of assisting terror groups. It also allows internet service providers to maintain records of data to aid officials
during investigations.
In June 2015, 30 British tourists were gunned down by an IS-inspired terrorist named Seifeddine Rezgui in the resort of
Port El Kantaoui in Tunisia. In November 2016, the government requested that Tunisia keep the inquests secret as it
does not want any further atrocities to be committed against British nationals if information about the enquiry goes
public. In December 2016, the threat of international terrorism was ranked as severe, indicating that attack was highly
likely. In 2017, the UK was subject to a number of attacks – In March 2017, a terrorist drove a car into pedestrians on
Westminster Bridge injuring 50 people before abandoning the car, running into New Palace Yard and stabbing an
unarmed police officer. On May 22, 2017, a suicide bomber detonated a homemade bomb at the concert of an
American singer Ariana Grande in Manchester, killing 23 and injuring more than 500. On June 3, 2017, London was
again victim to terror when a van stuck pedestrians on London Bridge, resulting in eight deaths. In September 2019,
UK’s most senior counter-terrorism officer revealed that the number of foiled terrorist attacks in the country stood at
22, of which seven were related to far-right terror, since the Westminster attack in March 2017.
Brexit and its implications

During a referendum held in June 2016, the country voted to leave the EU. Following the decision, Prime Minister
David Cameron resigned, taking responsibility for the failure of his Remain campaign. In July 2016, former home
secretary Theresa May was voted in as prime minister by members of the Conservative Party, adopting centrist
economic policies and reshuffling the cabinet. The government’s chief opponent, the Labour Party, is involved in
containing its own internal pressures and power struggles. As such there seems to be no imminent political threat to
Conservative rule, despite Labour gaining seats in the last election.
The referendum has boosted the hopes of Euro skeptics across the continent. Post-Brexit, the Czech Republic,
Hungary, Slovakia and Poland are raising their voices against EU centralization and there are growing concerns that
the Czechs might call their own referendum. Hungarian president, Viktor Orban, suggested that Brexit occurred due to
common people’s frustrations with immigration. The Slovakia and Polish governments are now worried about the
security of their nationals in the UK post-Brexit. Germany’s political concerns have also been amplified, as the
presence of a strong ally like the UK helped in silencing peripheral and weaker countries such as the Visegrad states.

PESTLE Analysis
With the UK out of the picture, Germany will have to approach their demands with more caution to guarantee the
stable future of the union.
In March 2017, Prime Minister Theresa May triggered Article 50 of the Lisbon Treaty, which started the proceedings
relating to the UK’s exit from the EU, while setting a two-year formal deadline for the country to negotiate a deal with
the EU. Initially the deadline for Brexit was March 29, 2019, which has been extended to October 31, 2019. The UK
parliament has not ratified any of the Brexit packages Theresa May put forward, which finally resulted in her
resignation on June 7, 2019. Following the resignation of May, Boris Johnson was appointed as the new prime minister
of the UK. The new prime minister has set a ‘do or die’ approach for Britain’s exit on October 31, 2019. Meanwhile, in
September 2019 a law was approved by the parliament that stops Britain exiting the EU without a deal, implying that
the deadline of the Brexit can be extended further if no deal is reached. On October 17, 2019, EU and the UK Prime
Minister struck a new Brexit deal which however was not approved by the UK parliament, following which the UK
Prime Minister sent an unsigned letter to the EU for a further three months extension of the Brexit deal. As of October
23, 2019, the UK is unlikely to have a Brexit by October 31, 2019 and the delay over Brexit remains unclear. The chaos
has led to a slowdown in the economy in 2019.

PESTLE Analysis
3.3. Economic analysis
3.3.1. Overview
The UK boasts high per capita GDP and a favorable investment climate; however, the government is challenged by
lower levels of productivity and a fall in its export market share. At present, the chaos over Brexit has impacted
consumption, investments and the economic activity of the nation. The fiscal deficit is narrowing, which is positive
news in the long term but a high rate of debt is considered a short-term economic risk.
Table 4: The UK – Analysis of the Economy
▪ Highly developed economy and favorable investment ▪ Brexit uncertainty impacting the economic growth
climate
▪ High level of competitiveness
▪ Rising productivity ▪ Trade cost of a no-deal Brexit

▪ Macro-prudential measures to strengthen the ▪ High household debt
financial system
▪ Narrowing fiscal deficit
▪ National Productivity Investment Fund
Highly developed economy and favorable investment climate

The UK is one of the largest economies in the EU and is one of the strongest in terms of social welfare. Among the EU
nations, the UK has one of the highest levels of GDP per capita in terms of purchasing power parity. The UK has
emerged as a lucrative location for investors over the years due to its diverse economy. According to the World Bank's
Doing Business Report 2019, the UK is the ninth best country in the world to do business. It takes only 4.5 days to start
a business in the UK as compared to the OECD high income nation’s average of 9.3 days. The country was ranked
seventh in the parameter of ‘Getting Electricity’, 14th in ‘Resolving Insolvency’, and 15th in terms of ‘Protecting
Minority Investors’.

PESTLE Analysis
High level of competitiveness

favorably. The country has a robust science base and boasts of strong high tech manufacturing capabilities in
aerospace, defense and automobiles. The UK’s strength lies in knowledge economy sectors such as banking, software,
and pharmaceuticals. According to the World Economic Forum’s Global Competitiveness Report 2018, the UK ranked
eighth out of 140 countries. The country ranked fourth in the parameter of ‘innovation ecosystem’ and seventh in
business dynamism, innovation capability, and entrepreneurial culture out of 140 nations in 2018. Considered the
doorway to the rest of the EU, the UK has a favorable business environment, skilled professionals, a central time zone
perfectly positioned between the east and the west, a flexible regulatory environment, and a leading global financial
center in London.
Brexit uncertainty impacting economic growth

The victory of the ‘Leave’ campaign in the June 2016 Brexit referendum was an economic shock. The depreciation of
the pound in 2017 following the referendum result acted as a short-time booster for exports but ate away the
purchasing power of households, while pushing up inflation. The pound per US dollar depreciated from 0.74 in 2016 to
0.78 in 2017 and then appreciated to 0.75 in 2018. According to data from the Office of National Statistics (ONS),
exports growth improved to 13.25% in 2017 from 5.26% in 2016 before slowing down to 2.67% in 2018. In the first
two quarter of 2019, exports grew at an average of 3.38% when compared with the same period of the previous year.
Since the referendum results consumer and investment sentiment in the UK has been badly hit due to the uncertainty
surrounding Brexit. According to MarketLine, real household consumer expenditure growth slowed down from 3.1% in
2016, to 2.1% in 2017, and further to 1.65% in 2018. Inward FDI also declined significantly by 48.4% in 2017 and 36.3%
in 2018, according to UNCTAD.
This has impacted the economic activity of the nation and the real GDP growth slowed down to 1.4% in 2018 from
1.8% in 2017. In Q2 2019, the economy grew by 1.22% YoY as compared to 1.8% in the first quarter of 2019.

PESTLE Analysis
Figure 2: Real GDP and Exports Growth, 2016 Q1 – 2019 Q2
Source: OECD MARKETLINE
Rising productivity
The UK’s productivity growth was resilient during 2012–2018. Wages grew in both nominal and real terms, and the
reduction of the interest rate of the Bank of England (BOE) in August 2018 to a historic low boosted investment due to
the lower cost of borrowing. Productivity growth is a good indication of future growth, since lagging productivity has
been a chronic problem of the British economy post-recession.

PESTLE Analysis
Figure 3: The UK, Labor Productivity, 2000 Q1–2019 Q1

Note: SA is seasonally adjusted
Macro-prudential measures to strengthen the financial system

In the wake of the financial crisis and several cases of fraud, the government has taken steps to strengthen the
financial system. A new financial regulation and supervision framework gives the Bank of England authority to monitor
the day-to-day supervision of financial services firms through the Prudential Regulation Authority. Subsequently, it has
the responsibility of macro-prudential supervision of the financial system through the Financial Policy Committee. The
Financial Policy Committee (FPC) is in charge of identifying, monitoring and implementing measures to remove or
reduce systemic risks from the financial system.
As of November 2016, many recommendations made by the FPC were implemented. These include contingency
planning in a survival threat situation; managing and mitigating balance sheet risks from euro-area stress; ensuring
capital resources of at least 7% of risk-weighted assets; increasing capital in a way that does not impact lending;
ensuring credible plans to move to higher future capital requirements; assessing susceptibility to a sharp rise in long-
term interest rates; assessing the feasibility of calculating capital ratios by means of Basel III standardized approach;
and requiring mortgage lenders to consider any future FPC recommendation on interest rate stress tests. The
implementation of other recommendations, such as developing proposals for regular stress testing of the UK banking
system is underway. Such macro-prudential measures are improving the resilience of the UK’s financial system. The
stress test conducted by FPC for 2014, 2015 and 2016 showed that the banks are capitalized to sustain any scenario. In
the 2018 stress test of the Bank of England, it had indicated that the banks in UK can withstand a disorderly Brexit
scenario.
Nevertheless, the implementation of these measures has significantly brought down the perceived risks of the UK
financial system. Another barometer that shows increased financial stability in the UK’s financial system is the risk
premium on the interbank market, which has compressed substantially. This has helped substantially in improving the

PESTLE Analysis
liquidity in the financial system and reducing the funding problems for the banking sector. Cumulatively these factors
point toward a more resilient financial system in the UK. According to the Bank of England, the capital ratio rose from
20.2% during the first quarter of 2018 to 21.2% in the first quarter of 2019.
Figure 4: The UK – Total Capital Ratio (%), 2014 Q1–2019 Q1
Source: Bank of England MARKETLINE
Figure 5: The UK – Total Capital of Banks (EUR Billions), 2014 Q1– 2019 Q1

PESTLE Analysis
Narrowing fiscal deficit

The government has embarked on fiscal consolidation to reduce the country’s deficit. As of 2018, the government
deficit stood at 1.53% of GDP, down from 8.07% in 2012, when it widened due to government-funded bailouts during
the financial crisis. The UK’s relatively swift recovery has helped it raise tax receipts since 2014.
Figure 6: The UK – Government Deficit (%), 2010 and 2018
National Productivity Investment Fund

In November 2016, the government took a pro-business and pro-innovation approach and allocated £23bn
(US$31.1bn) as part of its autumn statement. The fund was to tackle the shortcomings in the infrastructure and
innovation sector to bolster business confidence. In the 2018 autumn statement the total allocation under the
National Productivity Investment Fund was increased to £37.6bn (US$50.2bn) to be spent during the period from
2017–2018 to 2023–2024 on the development of housing, transport, digital infrastructure and research and
development. Of the total, 3.7% was allocated for 2017–2018, 9% for 2018–2019, 15.8% for 2019–2020, 16.3% for
2020–2021, 18.5% for 2021–2022, 17.3% for 2022–2023 and 19.3% for 2023–2024.
3.3.5. Future risks
Trade cost of a no deal Brexit

Members of the EU have 40 agreements with about 70 countries through which they receive preferential treatment.
In the situation of a no-deal Brexit or in the absence of a proper deal with other countries, the UK is expected to lose
preferential treatment status and have to export using WTO’s most-favored-nations tariffs. The EU accounted for
almost half of the total merchandise exports (US$450bn in 2018) of the UK. In the situation of a no-deal Brexit the UK

PESTLE Analysis
would lose preference in the EU markets, and the loss would amount to almost US$16bn, which is equivalent to
approximately 7% of the overall exports to the EU, according to UNCTAD estimates that had taken into account only
the increase in the tariffs. Moreover, border controls, disruption of production networks and the non-tariff barriers
are expected to add to the losses.
High household indebtedness

House prices continue to rise. Inflation is an established trend, with properties in London recording prices significantly
above the national average. Moreover, a gap between demand and supply has exacerbated the inflationary scenario.
As a result, house prices exhibited a rising trend in the UK. The market was significantly overvalued, as judged from a
rise in price-to-average earnings ratio. In London, the median house price to median gross earnings increased from
8.75 in 2010 to 13.09 in 2018.
The persistent rise in house prices has raised expectations that this trend will continue indefinitely, a cause for
concern as it encourages households to take on more debt and invest in second or third homes. This has caused the
appreciation of house prices and a self-reinforcing demand cycle for properties, which are already in short supply. The
household debt as percentage of net disposable income rose by 1.95% to reach 148.89 in 2018.
Figure 7: The UK – Ratio of Median House Price to Median Gross Annual Residence-based
Earnings by Country and Region, 2018
Source: Office for National Statistics (ONS) MARKETLINE

PESTLE Analysis
Figure 8: The UK – Household Debt (% of Net Disposable Income), 2018

PESTLE Analysis
3.4. Social analysis
3.4.1. Overview
UK residents enjoy a standard of living comparable with those in other developed countries. Decades of economic
growth have helped in the development of a robust social infrastructure. The UK’s education and healthcare delivery
systems rank among the best in the world. The government is focused on alleviating income inequality and plans to
eradicate child poverty by 2020.
Table 5: The UK – Analysis of the Social System

▪ Strong education system ▪ Child poverty
▪ Healthcare services ▪ Controversial immigration act

▪ Policies to support pensioners and encourage savings ▪ Challenges of an aging population
▪ Rising inequality
Strong education system

The UK has high-quality educational infrastructure and attracts students from all over the world. Qualifications
obtained from UK institutions are recognized and respected the world over. In The Times Higher Education World
University Rankings 2019, six universities from the UK were in the world's top 30. The rankings are based on teaching,
research, knowledge transfer, and international outlook.
Healthcare services
The UK’s healthcare system is one of the most successful social ventures in the world. This is due to the presence of
advanced healthcare infrastructure and private sector involvement. The UK’s public expenditure on health has
traditionally been high, which has helped in the maintenance of quality and efficiency. According to MarketLine, public
expenditure on healthcare in the UK was at 8.8% of GDP in 2016 which increased from 6.94% of GDP in 2010. Thanks
to bilateral healthcare agreements, all residents have access to care in the European Economic Area. The number of
doctors per 1,000 population in 2018 was 2.9, higher than the 2.6 doctors per 1,000 population in the US in 2017.

PESTLE Analysis
Child poverty
The government has set a target of eliminating child poverty by 2020. According to the government’s definition
Children are said to be living in relative income poverty if their household's income is less than 60% of the median
national income. According to The Institute for Fiscal Studies (IFS) forecasts, child poverty will increase from 2.4
million in the past decade to 3.4 million by 2020. According to the data from the Department of Work and Pensions,
around 4.1 million children were in poverty in the UK in 2017–2018. Of the total, 53% were under the age of five,
which is an increase from 51% in 2016–2017. The government must do more to tackle poverty, especially among
children, if it is to achieve its goal by 2020. According to data released by the government, the number of children in
absolute poverty rose by 200,000 to 3.7 million in 2017–2018.
Controversial immigration act

Immigration is a contentious issue in the UK. Since coming to power in 2010, the government has proposed reforms to
regulations to reduce net immigration. In May 2014, the bill passed into law after receiving royal assent. However, the
negative impact of the controversial reforms, especially with regard to international students coming to the country to
pursue higher education, is intensely debated. Proposals include the removal of free access to the NHS for
international students, requirements for banks to verify the immigration status of new clients, and changes that make
it easier for the Home Office to remove people from the UK. The law also includes a provision to strip terror suspects
of their citizenship, eliminate the right of appeal for extension applications made in the UK, and the indefinite
retention of biometric data.
The new law has faced criticism from student groups, universities, and policymakers alike. The UK’s highly reputed
education sector fears that the new immigration laws will further reduce international student enrolment in
universities, which are already recording their lowest levels of enrolment for 30 years. International students add to
the UK’s research base, especially in science, technology, engineering and mathematics (STEM). According to the UK
Council for International Student Affairs (UKCISA), international students account for 50% of those pursuing full-time
research degrees and over 40% of UK postgraduate students. Additional declines in enrolment due to the new
regulations may affect the competitiveness of UK’s universities in the long term.
account and driver’s license will be seized.
Policies to support pensioners and encourage savings

In September 2016, the government stated its intent to establish retirement reforms. A pilot version of the long-
awaited online pension dashboard began in March 2017. In April 2019, the Department for Work and Pensions
expressed its intent to set up a dashboard delivery group by 2019 under the Money and Pension Service’s supervision,
which is a consumer guidance body of the government. Individuals will be able to access all pension related data from
the dashboard by themselves.

PESTLE Analysis
3.4.5. Future risks
Relatively high dependency ratio

According to the OECD, the UK’s old age dependency ratio will rise from 28.78% in 2018 to 40.52% by 2050. The
economic support ratio fell after the global financial crisis as more people were unemployed, resulting in less revenue
from worker taxes.
The problems of an aging population will plague the UK as people continue to retire in increasing numbers. With the
country's older population increasing annually, the cost of social welfare will rise. This could have serious implications
for the country’s finances. With the government trying to reduce its deficit, welfare costs need to be controlled.
Figure 9: The UK – Old Age Dependency Ratio (%), 1950, 1975, 2000, 2015, 2025, 2050 and
2075
MARKETLINE
Source: OECD
Rising inequality
Rising inequality is a concern. According to the OECD, the UK’s Gini coefficient (a measure of income inequality) stood
at 0.36 compared to the OECD average of 0.35 in 2017. A score of zero corresponds to complete equality while a score
of one corresponds to complete inequality. Inequality in the UK is higher than France (0.29 in 2016), Germany (0.29 in
2016) and the Netherlands (0.28 in 2016). The UK ranks among countries witnessing the fastest rise in inequality. The
country’s poverty rate measured as the ratio of people whose income falls below the poverty line, stood at 0.12 in
2017, which is also higher than France (0.08 in 2016), Germany (0.1 in 2016) and the Netherlands (0.08 in 2016). The
government has been forced to undertake prudent fiscal measures to strengthen public finances, which is expected to

PESTLE Analysis
increase income disparity. Inequality creates political, social and economic challenges and stifles upward social
mobility. Taxes and benefits must be reformed to challenge the increase in inequality.
Figure 10: The UK – Gini Coefficient and Relative Poverty, 2014
MARKETLINE
Source: OECD
Note: Relative poverty is the share of the population with an income of less than 50% of the respective national median
income. Income after taxes and transfers, adjusted for difference in household size.

PESTLE Analysis
3.5. Technology analysis
3.5.1. Overview
The UK is at the forefront in ecosystem innovation and ranked fourth in this parameter, out of 140 nations, in the
Global Competitiveness Index Report of 2018. Increasing R&D expenditure is positive; however, the dearth of skilled
personnel could pose a serious challenge to the country. Increasing cyber-attacks is also an area of concern.
Table 6: The UK – Analysis of Technological Landscape

▪ Effective intellectual property rights ▪ Lack of skilled personnel
▪ Increasing R&D expenditure ▪ Regulatory control over indigenous innovations

▪ Scope for new industries in the technological domain ▪ An increase in cyber attacks
▪ Government policies towards encouraging R&D
Effective intellectual property rights

As the UK is at the forefront of global innovation and R&D, it has concurrently developed legislation concerning the
protection of intellectual property rights (IPRs). The UK Intellectual Property Office (UK-IPO) is responsible for granting
IPRs. Although the UK does not have a general statutory register of copyright, the UK-IPO is responsible for
maintaining registers of trademarks, designs, and patents. IPR protection legislation is frequently enacted and
amended in line with industry developments.
Increasing R&D expenditure

The UK is renowned for the quality of its R&D and its strengths in science and innovation. According to MarketLine,
total expenditure on R&D stood at US$44.32bn in 2017, an increase from US$42.66bn in 2012. Business expenditure
on R&D in the UK also increased to EUR26.29bn (US$29.54bn) in 2017 from EUR21.09bn (US$27.04bn) in 2012,
according to Eurostat.
Lack of skilled personnel

Despite the quality of educational and research institutions within the UK, there is a shortage of workers in the R&D
sector. One of the reasons is the attractive opportunities available outside of research within the UK. Its number of

PESTLE Analysis
technicians in R&D (per million people) stood at 1,359 in 2015, while Germany (1,912) and France (1,798) fared better,
according to the World Bank.
The UK has a lack of IT and telecom talent, as the number of graduates with IT-related degrees has declined
substantially in recent years. Both R&D and IT are vital to economic growth, and a dearth of personnel could pose a
serious challenge to the country's attempts to maintain its competitiveness in these areas.
Regulatory control over indigenous innovations

Authorities face the challenge of striking a balance between keeping the distribution of indigenous technology
profitable and maintaining a competitive advantage. While the UK is a key player in the defense industry, if companies
within this field are not able to produce innovative products they will lose contacts to international competitors. The
government must therefore closely monitor developments in such industries and decide on a relevant export policy.
Scope for new industries in the technology domain

As the UK is at the forefront of new technology, there are good opportunities for the development of relatively
nascent fields such as nanotechnology, space exploration and tourism, and alternative energy. The government has
implemented incentives such as tax concessions to make investment in such industries an attractive proposition.
While such ventures are generally capital-intensive and returns are uncertain, prospects are extremely bright for
companies that do manage to make a breakthrough. In November 2017, the government unveiled a new industrial
strategy to boost economic productivity and embrace the opportunities presented by technological change. The
strategy aims to make the country the most innovative nation in the world by 2030 and the government is
encouraging the use of electric vehicles through a £400m (US$512.82m) infrastructure investment, a £1.0bn
(US$1.28bn) digital infrastructure investment, and a £20.0bn (US$25.64bn) fiber network investment.
Government policies towards encouraging R&D

Given the UK’s competitiveness in high-technology exports, the country must innovate in export-oriented sectors.
Providing impetus to R&D is the key to raising productivity and living standards. Therefore, incentives to foster R&D
are comparatively better than those of Germany, Spain, and Italy. In November 2016, Prime Minister May announced
a £2bn (US$2.70bn) annual government investment to 2020 to keep the country at the forefront of R&D. The adoption
of a new industrial strategy challenge fund to boost priority technologies such as robotics and biotechnology was also
put into effect. The government has created what it terms as catapult centers – technology and innovation clusters for
scientists, engineers and businesses to work together to turn R&D into new products and services. It identified seven
areas for development: high-value manufacturing, offshore renewable energy, cell therapy, digital economy, future
cities satellite applications, and transport systems. The government of the UK envisages increasing the investment in
R&D from 1.7% of GDP in 2017 to 2.4% of GDP by 2027. It also aims to increase the rate of tax credit to 12% by 2027
and invest £725m (US$929.49m) in new Industrial Strategy Challenge Fund programs.

PESTLE Analysis
Figure 11: The UK – Government Funding of R&D (%), 2016
MARKETLINE
Source: OECD
3.5.5. Future risks
Increasing cyber attacks

According to research published in June 2015 by the Centre of Economics and Business Research (CEBR) alongside
computer security group Veracode, cyber-attacks cost the UK £34.0bn (US$45.94bn) annually. The threat is impeding
innovation as increased spending on IT security is reducing the capital available. In October 2018, the National Cyber
Security Centre (NCSC) warned Britain of a Category 1 life threatening cyber-attack. The agency repels at least 10
attempted cyber-attacks per week in the UK. Since its inception in 2016, the center’s agency has dealt with 1,167
cyber incidents. According to the Federation of Small Businesses (FSB), a cyber-crime has been committed against one
out five small firms during the period from January 2017 to January 2019. Small businesses are subject to around
10,000 cyber-attacks per day in the UK, which is estimated to cost £4.5bn (US$5.8bn). Thousands of small businesses
are victims of phishing attempts, and the incidence of malware, fraudulent payment requests and ransom-ware has
become very common.

PESTLE Analysis
3.6. Legal analysis
3.6.1. Overview
The UK’s legal system is organized, transparent, and efficient. This makes for an environment that is conducive to
business, as legislation is passed in a practical manner with all stakeholders in mind. Legislation is enforced in a fair
manner by a number of agencies established to monitor specific areas. The government has brought in general tax-
avoidance rules to make evasion difficult. British overseas territories have signed a treaty to improve tax transparency,
which is likely to improve compliance. The government will have to bring about changes in its policies to attract FDI
and to compete with BRIC nations and advanced economies.
Table 7: The UK – Analysis of the Legal Landscape

▪ High in business freedom ▪ Finding balance between traditional liberties and
▪ Effective enforcement of legislation increased terror threat
▪ Low total tax rate and tax compliance cost
▪ Measures to cut down tax evasion ▪ Lack of incentives to attract FDI
▪ Improving product market regulations
▪ Corporate tax reduction
Economic freedom
Laws that affect the UK’s business environment have been created and amended with the interests of investors in
mind. The majority of multinational corporations based outside Europe therefore prefer to control their European
operations from the UK. On the 2019 Index of Economic Freedom, the UK was ranked seventh in the world and third
in Europe. The country scores high in terms of property rights, government integrity, judicial effectiveness, business,
monetary freedom, labor freedoms, trade freedom and investment freedom.
Efficient regulatory environment

It takes 4.5 days to start a business in the UK, compared to the Organization of Economic Co-operation and
Development (OECD) average of 9.3 days. The number of days taken to enforce a contract is 437, again lower than the
OECD average of 582.4. In the World Economic Forum’s Global Competitiveness Report of 2018, the UK ranked 11th
out of 140 countries in the parameter of efficiency of legal framework in challenging regulations.

PESTLE Analysis
Low total tax rate and tax compliance cost

According to Paying Taxes 2018, the UK’s total tax rate (aggregate of profit taxes, labor taxes and other taxes) was
30.7%, lower than the EU and EFTA average of 39.6%. The time taken to comply with taxes is some 110 hours, lower
than the EU&EFTA average of 164 hours. A low tax burden and compliance costs make a country more investment
friendly environment.
Striking a balance between traditional liberties and tackling the threat of terrorism
The government faces the challenge of maintaining a traditionally liberal society while taking steps to combat
terrorism. A 2006 law bans what is termed as the glorification of terrorism and gives law enforcement agencies
powers to act against websites that are deemed inflammatory. While the House of Commons approved the law by a
comfortable margin, members of the House of Lords criticized it as restricting the freedom of speech. In much the
same way, the Terrorism Act 2006 and the Prevention of Terrorism Act 2005 were deemed controversial. The new
immigration act of 2014, which empowered authorities to strip suspected terrorists of citizenship, has also attracted
controversy.
account and driver’s license will be seized. According to a report published in May 2019 by Social Market Foundation,
a British independent think tank, illegal migration in the UK is expected to rise after the country leaves the EU, as
closing legal migration routes will encourage more illegal immigration.
Measures to reduce tax evasion

The British territories of Anguilla, Bermuda, Montserrat, the Turks and Caicos Islands, and the British Virgin Islands
have signed a treaty with the UK and other G5 nations to share tax information. The Swiss/UK Tax Cooperation
Agreement, which came into force from January 2013, is expected to improve information exchange and disclosures
related to British assets in Swiss banks. In June 2013, G8 countries agreed to take steps to tackle tax evasion and
avoidance. The government has recruited criminal investigators to prosecute those who evade tax and consequently
the number of people prosecuted has increased over the years. Recent figures highlighted a reduction in the UK’s tax
gap from 7.2% in 2005–2006 to 5.6% in 2017–2018 due in part to the digital transformation of collection. The
government has shown intent on the improvement of general anti-abuse law and on identifying newer conditions
under which some promoters repeatedly avoid market tax.
Improving product market regulations

Product market indicators are a set of metrics that measure the extent to which policies framed by the government
promote or inhibit competition in areas where competition is possible. Many of the sectors in the UK are not as tightly
regulated as they are in its OECD counterparts. This is indicative of a more competition-friendly market and fewer

PESTLE Analysis
monopolies. In the Global Competitiveness Index, the UK ranked 12th in the parameter for competitiveness in 2018.
The country’s rank was ahead of Belgium (22nd) and France (31st). During 2008–2013, deregulation in the product
and services market took place, which reduced expenses for businesses. The easing of regulations will attract more
investment and open up new avenues of employment.
Figure 12: The UK – Product Market Competitiveness, 2018
MARKETLINE
Source: Global Competitiveness Report, World Economic Forum
Corporate tax reduction

The government cut the rate of corporate tax to 20% on April 1, 2015. The rate was further reduced by 1% to 19%
effective April 1, 2017. Since then the rate has been kept unchanged. This reduced rate is a welcome for businesses, as
they can spend a greater share of their profits on expansion. The step also helped the UK increase its competitiveness
in the Europe area. This policy will make the UK a favorable investment destination for large businesses.
3.6.5. Future risks
Lack of incentives to attract FDI

A number of emerging economies have introduced schemes to attract foreign investment. India, Russia, and China use
various versions of special economic zones, which attract marquee global investors looking for tax exemption or
concessions. A trend that may define this decade is the increasing attractiveness of Germany to international
investors. Germany’s emergence from recession and its economic leadership in Europe is likely to be a challenge to
the UK as a destination for foreign investment. The UK’s government will have to change its policies to compete with

PESTLE Analysis
other developed economies and the BRIC nations to attract FDI. The restrictions in foreign investment in the UK are
higher than other peer nations like Germany, Greece, Denmark and Belgium in 2018.
Figure 13: The UK – FDI Restrictiveness Index, 2018

PESTLE Analysis
3.7. Environmental analysis
3.7.1. Overview
The UK has a large role to play in determining future global policies. Increasingly, world leaders are viewing climate
change and sustainable development as issues that require concerted collective efforts and the UK has a major role to
play in convincing other countries to commit to this cause. The government must also ensure that it meets its own
commitments to set an example for other nations.
The UK must reduce its emission of pollutants if long-term environmental protection is its aim. Although targets have
been set through a number of international and internal agreements, the process should be developed further. The
challenge lies in balancing economic development with environmental progress. This will be especially difficult in the
face of increasing competition from emerging markets.
Table 8: The UK – Analysis of the Environmental Landscape

▪ Strong global influence
▪ Good track record in implementing policies ▪ High air pollution

▪ Proactive policy toward Kyoto Protocol successor
▪ Carbon budget ▪ Balancing environmental protection with economic
▪ Ambitious environmental targets development
Strong global influence

With its position as an industrialized global power and as a member of the G8, the UK has a leadership role to play in
the global effort towards sustainable development and environmental protection. The country has close ties with a
number of countries and an influential position in the Commonwealth. Consequently, it has the ability to extract
commitments from developing nations unwilling to sacrifice economic growth to protect the environment.
Good track record in implementing policies

The UK has a good record of accomplishment in achieving a number of its environmental objectives and in expanding
its environmental infrastructure. The country has broadened its environmental objectives because of various
international commitments, and partly as a response to its goal of sustainable development. The step towards
integrated pollution control is a major component of environmental management, although it is only half-complete
and its scope is still limited to large sources of pollution. The Energy Act 2011 brought about a significant change in the
provision of energy efficiency measures for both homes and businesses. The act seeks to enable and secure low

PESTLE Analysis
carbon energy supplies and ensure fair competition in the energy markets. Seven environment-related directives have
been combined into one piece of legislation to improve the framework of the act. The Energy Act 2013 succeeded the
Act of 2011 and aims to set a de-carbonization target for the UK with an emphasis on reforming the electricity market.
The government has stated that it is committed to the use of market forces, although it is yet to make extensive use of
economic instruments as part of its environmental policy. In September 2019, the new prime minister of Britain
allocated £1.2bn (US$1.56bn) to tackle issues related to climate change and protect endangered species. Of the total,
£220m (US$285.7m) has been earmarked to tackle the erosion of biodiversity and save endangered species like the
Sumatran tiger and black rhinos.
High air pollution

In June 2010, the European Commission (EC) issued a second and final warning to the UK over its air quality, asking the
country to develop a pragmatic solution to pollution. London suffers high levels of air pollution, while Manchester,
Glasgow and Birmingham have dangerous levels of NO2. Exhaust fumes and emissions from factories and power
stations are the main causes.
In May 2013, the Supreme Court ruled that the government failed to reduce air pollution levels as set by the EU
directive and the EC was able to take legal action against the government for non-compliance. In July 2014, the
Department of Environment, Food and Rural Affairs reported that London is projected to fail EU air quality limits until
at least 2030, missing the deadline by two decades. New data from the World Health Organization (WHO) found more
than 40 towns and cities in the UK encroaching the safe limits of air pollution. It indicated that 80% of the population
in urban areas is exposed to dangerous levels of air pollution, with the agency calling it “a public health crisis”.
According to the Royal Colleges of Physicians and of Pediatrics and Child Health in 2017, 40,000 early deaths occur
annually due to air pollution in the UK. According to Defra National Statistics Release on Air Quality, over the last
decade (2009–2018), urban PM2.5 pollution in the UK has exhibited a declining trend; however, in the last four years
(2015–2018) it had remained almost stable.
Proactive policy toward Kyoto Protocol and COP21 successor

The UK played a central role in galvanizing support for extending the Kyoto Protocol beyond 2012. The UK supported
the ratification of the Kyoto Protocol’s second commitment period and worked to secure a mandate for a
comprehensive legally binding instrument in protocol form by 2015. Indeed, by committing to a second commitment
period, the UK through the EU has championed the next round of negotiations, helping to maintain essential elements
that include its potential long-term viability as a framework. This is a significant step forward in curbing emissions to
tackle global climate change. In November 2016, the government also ratified the COP21 agreement after the UN
climate change conference in Paris, thus committing itself to lessen its balance on carbon-dependent growth. As part
of the agreement, the government supported the improvement of national carbon reduction strategies and bolstering
innovation to introduce cleaner energy on a global scale.

PESTLE Analysis
Carbon budget
Under the Climate Change Act, the government must report to lawmakers on its progress in meeting carbon budgets
on an annual basis. In 2008, the government has set an overall target of an 80% reduction in emissions from 1990
levels by 2050. To this end, the government has started a mandatory scheme for large public and private sector
organizations to boost their energy efficiency and reduce carbon emissions. Emphasizing more on the issues related to
climate change, the government of the UK amended its target in June 2019 to reduce emissions to zero by 2050.
Ambitious environmental targets

The government of the UK has set ambitious targets to improve air and water quality and protect wildlife and trees.
Figure 14: Environmental targets
3.7.5. Future risks
Balancing environmental protection with economic development

The dilemma of striking a balance between economic developments and protecting the environment is one that will
remain an issue in the near future. In the UK, the relative decline of the industrial sector has meant that there is less
pressure on the environment, although even the transition to a services-driven economy has not erased the harmful
impact that overall economic development is having on the planet. The UK’s economic growth will not be sustainable
unless the government focuses on green growth. The balance between environmental protection and economic
development is tricky.

Political Landscape
4. Political Landscape
4.1. Summary
The UK has strong democratic traditions. There is great respect for human rights and civil liberties, and the public
sector is transparent and accountable. The system of governance has developed from a monarchy into a democratic
parliamentary structure known as the Westminster system. The legislative, executive, and judicial functions are
entrusted to separate bodies. Executive authority is vested in the cabinet, led by the prime minister. Legislative
authority is vested in a bicameral parliament, and judicial authority is vested in a system of courts. None of these
institutions has absolute authority over the other and there is an adequate system of checks and balances in place.
The monarch, Queen Elizabeth II, is the head of state, but this position is largely ceremonial.
The UK emerged from the World War II as a dominant, industrialized nation, largely on the back of continuous
economic development. As a result, it became a major force in global politics as a permanent member of the UN
Security Council and NATO, and an important member of the EU. The UK has distanced itself from complete European
integration, but at the same time, the government has tried to keep itself involved in the EU's international
commitments. The country was criticized for its support of the US-led war on terror in Afghanistan and Iraq.
In May 2010, elections to the House of Commons brought about an historic change in the political composition of the
UK. The Conservative Party won the elections, and Cameron was re-elected for a second term in May 2015. However,
after the Brexit referendum held in June 2016, Cameron resigned from office. In July 2016, former Home Secretary
May became prime minster. In the general elections held in June 2017, the Conservatives lost their parliamentary
majority, winning 317 out of 650 seats in the House of Commons and were forced into a coalition with the DUP. The
UK parliament has not ratified any of the Brexit packages Theresa May put forward, which finally resulted in her
resignation on June 7, 2019. In July 2019, Boris Johnson took over from Theresa May and became the new prime
minister of the UK. The new prime minister has promised a ‘do or die’ approach to leaving the EU within the
scheduled date of October 31, 2019.
4.2. Evolution
4.2.1. Pre-1950s
Early medieval Britain consisted of a number of small kingdoms, which formed into the kingdoms of England and
Scotland. The King of Scotland inherited the English throne in 1603 and acted as sole ruler over the two territories.
These kingdoms were combined to form the Kingdom of Great Britain in 1707. In 1801, the Kingdom of Great Britain
merged with the Kingdom of Ireland to form the United Kingdom of Great Britain and Ireland, which became a
dominant power in the 19th century. The nation later became the United Kingdom of Great Britain and Northern
Ireland after southern Ireland seceded in 1927.

Political Landscape
At the height of its power, the British Empire covered around a quarter of the earth’s surface. However, the nation
suffered great losses during the two world wars in the first half of the 20th century. After World War II ended, the
Labour Party came into power and established the welfare system. The UK became a permanent member of the UN
Security Council and a founder member of NATO. The end of World War II also heralded the start of a process of
decolonization, whereby a number of the UK’s colonies gained independence.
4.2.2. 1950–1990
In 1961, the UK’s application to join the European Economic Community (EEC) was opposed by the then French
president Charles de Gaulle, although the country eventually joined in 1973 despite widespread strikes. The late 1960s
saw the start of an intense violent conflict in Northern Ireland between elements of the unionist community and the
nationalists.
The Conservative Party came to power in 1979, led by Margaret Thatcher. In 1982, the UK sent special forces teams to
the Falkland Islands (an archipelago located off the coast of South America) after they were invaded by Argentina, and
successfully regained control of the territory. Under Thatcher, economic reforms took place with the introduction of
free market policies and the privatization of various state enterprises. Thatcher was re-elected twice, in 1983 and in
1987, but resigned in 1990 after facing a challenge for the leadership of the Conservative Party. John Major succeeded
her as prime minister.
4.2.3. 1991–2019
In 1991, as a US ally, the UK helped liberate Kuwait from Iraqi occupation. The Northern Ireland peace process
received a boost in 1993 when the government issued a joint peace proposal with the Irish Government. Eventually,
the 1998 Belfast Agreement ended the conflict in Northern Ireland. Since then, there has been a significant devolution
of powers from the central government to various sub-national entities. The devolved system of government is
different from a federal system in that, under the doctrine of parliamentary sovereignty, devolution is in theory
reversible and sub-national entities are subordinate to the UK parliament.
In 1997, the Labour Party, led by Tony Blair, won a landslide victory over the Conservatives. Blair’s party was
subsequently re-elected twice, in 2001 and again in 2005, despite the party’s policy of staunch support for the wars in
Iraq and Afghanistan. In 2007, Gordon Brown succeeded Blair as prime minister.
In June 2009, the governing Labour Party lost the European elections with only 15.7% of the vote, while the
Conservative Party received 27.7%. In the May 2010 elections, the Conservative Party won a 36.1% share of the vote.
Conservative leader Cameron subsequently went on to form a coalition government with the Liberal Democrats in the
May 2015 elections.
In December 2011, Prime Minister Cameron disagreed with proposals to make changes in the EU’s Lisbon treaty
stating that these proposals would jeopardize the status of London as a financial center. In December 2012, both the
British and the Scottish governments agreed on a referendum for Scottish Independence in September 2014,
however, the people of Scotland voted against it. In January 2013, Prime Minister Cameron proposed a referendum on

Political Landscape
whether Britain ought to leave the EU. The people voted in favor of Brexit and Cameron resigned from office. In July
2016, former Home Secretary May became prime minster. The Conservative Party and DUP formed a new coalition
government after May lost her parliamentary majority in the June 2017 general elections. A number of Brexit deal
proposals were put forward by Theresa May, none of which was ratified by the parliament. Due to the failure over
Brexit, she resigned in June 2019 and Boris Johnson of the Conservative Party was appointed as the new prime
minister of the UK in July 2019.

Political Landscape
Figure 15: The UK – Political Events Timeline

Political Landscape
4.3. Structure and policies
4.3.1. Key political figures
Key political figures in the UK are:
 Prime Minister Boris Johnson

 Head of state Queen Elizabeth II
Figure 16: The UK – Key Political Figures, 2019
MARKETLINE
Source: MarketLine
4.3.2. Structure of government
The UK subscribes to a democratic, parliamentary system of governance known as the Westminster system,
characterized by the presence of a titular head of state, who in practice is more of a ceremonial figurehead, and a
bicameral legislature in which at least one of the houses is elected. Other key features are a de facto executive branch
led by the head of the executive – usually the head of the party with the largest representation in parliament, and a
judicial branch that is independent of the legislature and the executive.
4.3.3. Center/federal

Political Landscape
Legislative power is vested in both the government and the two chambers of parliament: the House of Commons and
the House of Lords. On a broad level, the duties of the houses are similar and involve monitoring the work of the
government, passing legislation, and discussing issues of significance. There is a system of checks and balances, as the
decisions made by one house usually have to be approved by the other.
4.3.4. State/provincial
In the late 1990s, a significant devolution of authority was carried out in the UK through the transfer of powers from
the central government to various sub-national bodies. Despite the creation of a national parliament in Scotland and a
national assembly in both Wales and Northern Ireland, the UK parliament had retained overall authority over these
devolved institutions. Referendums held in Scotland, Wales, and Northern Ireland in 1997 and 1998 confirmed that
the public was in favor of devolution, and by 1999, the devolved powers were formally transferred.
Following the passage of the Scotland Act 1998, the Scottish parliament and executive formally came into existence;
the parliament has the power to make laws, with certain areas being reserved for the parliament of the UK. All areas
not reserved fall under the purview of the parliament of Scotland. The parliament and the executive have powers in
specific areas such as economic development, education, health, law and home affairs, local government, transport,
social services, housing, and the environment.
4.3.5. Key political parties
Labour Party
The Labour Party initially came into existence in 1900 as a political pressure group that was formed out of the trade
union movement, and was influenced by the socialist political parties of the time. A leading left party in England,
Scotland, and Wales since the 1920s, it has been a party of self-proclaimed democratic socialism. In recent times, the
party has adopted a "third way" approach to policymaking, combining both socialism and liberal principles.
Under the leadership of Tony Blair and Gordon Brown, it was at the helm of affairs in the UK from 1997 until 2010,
although its majority in the House of Commons fell rapidly during this time. Brown took over from Blair as prime
minister and head of the party in June 2007. In the May 2015 elections for the House of Commons, the party won just
232 seats out of 650, and lost to the Conservatives. In June 2017, the party secured 262 out of the 650 seats, equal to
40.3% of the total votes cast in the general election.
Conservative Party
The Conservative Party is arguably the oldest political party in the world, with roots in the Tory party of the 18th and
19th centuries. Indeed, even today, the Conservatives are often referred to as the Tories. The party is the largest in
the UK in terms of public membership, and is the most successful party in the UK in terms of number of election
victories.
The Conservative Party won the May 2015 House of Commons elections with 331 seats out of 650. The party had 330
seats in the assembly as of December 2016. The Conservatives own 317 out of 650 seats, 48.8% of the total votes cast
in the June 2017 general elections.

Political Landscape
Liberal Democrats
The Liberal Democrats trace their roots back to the formation of the Liberal Party in 1859. In terms of public
membership, the Liberal Democrats are the UK’s third largest party. In general, the party promotes social liberalism,
which focuses on individual liberty, minimal state intervention in an individual’s personal affairs, and the
decentralization of power away from "unaccountable" public bodies. Nick Clegg was elected leader of the Liberal
Democrats in December 2007 after the resignation of his predecessor, Sir Menzies Campbell.
The Liberal Democrats' policy initiatives are based on the objective of maintaining “a fair, free, and open society". For
example, the party supports the decentralization of power away from national government and free education for all
citizens including university students. It opposed the anti-terror laws brought in by the previous Labour government.
In the general elections of May 2015, the Liberal Democrats won only six seats in parliament. However, in the June
2017 general elections that party won 1.8% of the votes and now has 12 seats.
Scottish National Party

Under the leadership of Nicola Sturgeon, the Scottish National Party (SNP) won 56 out of the 59 seats available in the
Scottish parliament in May 2015. It completely decimated the Labor Party’s strong influence in Scotland, an indication
of how the politics of Scotland have become different to that of the rest of the UK. Despite the party rising to power
on the back of its promotion of devolution, the people of Scotland defeated its referendum on independence in
September 2014. In the general elections of June 2017, the SNP secured 35 out of the 650 seats, equal to 5.4% of the
total.
4.3.6. Composition of legislature
While the Labour Party managed to secure 262 seats in parliament, the Scottish National Party won 35 seats. As of
December 2017, the Conservatives had 317 seats in parliament.

Political Landscape
Figure 17: The UK – Composition of Legislature, 2017
MARKETLINE
Source: MarketLine
4.3.7. Key policies
Economic and social policies

According to the Public Expenditure Statistical Analysis, the government has allocated a total administration budget of
£11.05bn (US$14.35bn) for 2019–2020. Of the total, £2.87bn (US$3.73bn) has been earmarked for the health and
social sector, £1.59bn (US$2.06bn) for defense, £815m (US$1.06bn) for work and pensions, £488m (US$633.8m) for
education and £794m (US$1.03bn) for environment, food and rural affairs.
Amid the Brexit chaos, the government of the UK has committed to the 180,000 UK nationals residing in the EU in
September 2019 to continue funding for their healthcare for six months if the UK leaves the EU without a deal.
Foreign
The UK is one of the most prosperous and influential nations in the world and has a large role to play on the
international stage. The country is one of the five permanent members of the UN Security Council, is one of the
founding members of NATO, and a member of the G8. Despite being a member of the EU for a long time, it has always

Political Landscape
followed a conservative approach to European integration. After the referendum, UK–EU tensions could escalate in
the near term as the government renegotiates the terms of membership with the latter. A modified relationship may
lead to a diminishing role for the UK as far as future EU policy matters are concerned. The issue of Scottish
independence remains a serious risk, as there is a resurgence of SNP in recent elections, after their referendum on
independence was defeated in September 2014. With the Scottish National Party pressing for independence, the
future of the union remains uncertain. Although full independence is unlikely, there may be more devolution of
powers. The UK will continue to remain a close ally of the US. The country’s stature as the European heavyweight has
suffered a setback following the victory of the Brexit vote in the June 2016 referendum. In the EU elections held in
May 2019, the Brexit party won the highest number of seats with 31.6% share of the total votes, which is an increase
by 31.6% over the previous year. The number of votes for the Conservatives declined by 14.8% in the 2019 EU
elections compared with the previous year.
Since the referendum, the UK was successful in rolling over a number of trade agreements with other nations, which
will be effective post-Brexit. In September 2019, the US president Trump indicated that the US had been working on a
trade deal with the UK, which will be beneficial to both nations post Brexit.
Defense
The UK has a responsibility towards global peacekeeping and crisis management efforts, as a permanent member of
the UN Security Council. The UK has committed troops to a number of peacekeeping missions in Sudan, Liberia, Sierra
Leone, the Democratic Republic of the Congo, Cyprus, Kosovo, Bosnia, Georgia, Iraq, and Afghanistan. As one of its
main defense policy objectives, the UK aims to combat terrorism and the proliferation of weapons of mass
destruction. The UK has established a close relationship with the US, and has participated in the war in Iraq and
Afghanistan. As part of its defense policy, the UK committed forces to bring down the Gaddafi regime in Libya and
contributed to his overthrow. The current conflict in Syria and Iraq has not attracted an overt UK response. In the
Spending Rounds for 2020–2021, the government has allocated an extra £750m (US$974m) to be spent by 2023 to
recruit 23,000 additional officers to tackle crime and ensure safety in the UK. According to the Administration Budgets,
£1.59bn (US$2.06bn) has been allocated for defense for 2019, which accounted for 14.36% of the total administrative
budget.
4.4. Performance
4.4.1. Governance indicators
The World Bank report on governance uses voice and accountability, political stability, absence of violence,
government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 214 countries and
territories over 1996–2018. Daniel Kaufmann of the Brookings Institution, Massimo Mastruzzi of the World Bank
Institute and Aart Kraay of the World Bank Development Economics Research Group conducted the study. For any
country, a percentile rank of zero corresponds to the lowest rank and 100 to the highest.
The UK ranked in the 93.60 percentile out of 100 in terms of voice and accountability in 2018. This parameter
measures the extent to which a country's citizens are able to participate in selecting their government, freedom of

Political Landscape
expression, freedom of association, and the availability of free media. The UK ranks high due to its openness and
liberal attitude toward the press. The UK is ahead of its neighbor France, which ranked in the 88.18 percentile.
The UK ranked in the 48.10 percentile in terms of political stability and absence of violence in 2018. This parameter
measures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or
violent means, including domestic violence and terrorism. The UK was ahead its neighbor France, which ranked in the
51.90 percentile.
The UK ranked in the 87.98 percentile in terms of government effectiveness in 2016. This parameter measures the
quality of public services, the quality of civil services and the degree of their independence from political pressures,
the quality of policy formulation and implementation, and the credibility of the government's commitment to such
policies. The UK’s rank on this indicator has been impressive, as successive governments have broadly pursued similar
economic policies, leading to stability in policy formulation and implementation. France was slightly behind the UK
with a percentile rank of 91.83.
The UK ranked in the 96.15 percentile in terms of regulatory quality in 2018. This parameter measures the ability of
the government to formulate and implement sound policies and regulations that permit and promote private sector
development. A high ranking indicates fair implementation of policies and regulations in the private sector. In this
category, France trailed the UK, ranking in the 83.65 percentile.
The UK ranked in the 91.83 percentile in terms of rule of law in 2018. This parameter measures the extent to which
agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, the
police, and the courts, as well as the likelihood of crime and violence. In this category, France was placed lower than
the UK, ranking in the 88.94 percentile.
The UK ranked in the 93.27 percentile in terms of control of corruption in 2018. This parameter measures the extent
to which public power is exercised for private gain, including both petty and grand forms of corruption, and the
appropriation of the state by elite and private interests. France was placed lower at 87.98 percentile.
4.5. Outlook
Ex-Prime Minister David Cameron indicated that there would be a seismic shift in how the country was governed after
unveiling a historic coalition with the Liberal Democrats in mid-May 2010. However, following the Brexit referendum
of June 2016, he resigned as prime minister. The abolition of the Human Rights Act (HRA) was his priority, and was on
top of May’s agenda too. The government no longer has a strong majority in parliament, but with their chief rivals
embroiled in internal fighting, the Conservatives grip on Parliament is strong. In the short term, the incumbent
government will have to negotiate the SNP’s demands for autonomy, which have intensified post-Brexit. The
government will also have to be cautious with regards to the UK’s relationship with the EU to guarantee smooth
secession from the block.

Economic Landscape
5. Economic Landscape
5.1. Summary
The UK’s economic development has historically been based on its strong industrial centers. However, the services
sector has overshadowed the industrial sector to become the key driver of economic growth. This shift has led to
unbalanced economic growth, as London and the South East have consistently grown, while the Northern cities such
as Manchester, Liverpool, Newcastle, Sheffield, Leeds and Birmingham – areas traditionally dependent on industrial
activity – have not benefitted as much.
Owing to the uncertainty over Brexit, consumer and investment sentiment has slowed down since 2016 which
impacted the economic growth rate of the UK. Economic growth, which averaged 2.45% during 2013–2015, slowed
down to an average of 1.67% during 2016–2018. Public debt remains elevated in the UK and remains a cause for
concern.
5.2. Evolution
The UK has traditionally been at the forefront of economic progress. After the two world wars, a government led by
Clement Attlee, the then leader of the Labour Party, was established. This government went about the nationalization
of various industries and institutions such as the inland transport system, electricity, gas, telephones, coal mining, and
the Bank of England (BoE). The Labour Party still considers the establishment of the National Health Service in 1948
one of its most important achievements.
Led by Harold Wilson, the Labour government chose to concentrate on economic planning and the modernization of
industry. The government created large public sector companies that were technology-intensive, funded the creation
of infrastructure to support industry, and encouraged innovation and the adoption of new technologies.
The victory of Margaret Thatcher and the Conservative Party in the 1979 elections brought about a change in direction
for the UK economy. Under Thatcher, economic reforms took place with the introduction of free market policies and
the privatization of various state enterprises; the government sold a number of large public sector enterprises created
by previous governments. Thatcher was re-elected twice, in 1983 and in 1987, but resigned in 1990 after her
leadership was challenged. John Major succeeded her as prime minister.
Since the 1990s, the UK economy has made a pronounced shift from its traditional dependence on its industrial
sector. The services sphere came to the forefront, and successive governments have promoted this trend. During
2000–2007, economic growth averaged 2.84%. However, due to the global financial crisis, GDP contracted by -0.35%
and -4.25% in 2008 and 2009, respectively. The economy recovered in 2010 to register growth of 1.71%, and grew by
1.64% in 2011. Economic growth decelerated in 2012 when the economy grew by 1.45%. However, over the next
three years (2013–2015), the economy made a strong recovery led by strong domestic demand and grew at an
average annual rate of 2.45%. In 2016, the economy started slowing down due to the uncertainty surrounding Brexit.

Economic Landscape
The economic growth slowed down from 2.35% in 2015 to an average of 1.81% during 2016 and 2017 and further to
1.4% in 2018.
Figure 18: The UK – Historical GDP Growth (%), 2007–2018
5.3.1. Financial authorities and regulators
From April 2013 the Financial Services Authority ceased to exist and became two separate regulatory authorities. The
Financial Conduct Authority was established to supervise the financial services authority and the Prudential Regulation
Authority was formed to supervise banks, building societies, credit unions, insurers and major investment firms.
5.3.2. Stock markets and derivatives

Economic Landscape
The London Stock Exchange (LSE) is responsible for providing a platform to trade domestic and international equities,
covered warrants, exchange-traded funds, depository receipts, debts, and fixed interest products. The LSE allows
companies of every size to raise capital through four primary markets. It comprises the following components:
The Main Market: Arguably the most prestigious listing and trading environment in the world.
The Alternative Investment Market (AIM): The equities market for smaller companies.
The Professional Securities Market: For depository receipt securities and listed debt.
The Specialist Fund Market: Dedicated to specialized investment entities.
5.3.3. Insurance
The UK’s insurance industry grew at an average annual rate of 1.25% during 2014–2018. According to MarketLine
estimates, the total value of the industry was US$285.68bn in 2018. Of the total, life insurance accounted for 66.8%
(US$190.86bn) and non-life accounted for 33.2% (US$94.82bn). In comparison, Germany’s insurance industry
generated US$227.09bn in 2018 and grew at an average annual rate of 1.07% from 2014 to 2018. MarketLine
forecasts the UK insurance industry to grow at an average rate of 1.23% during 2019–2021 to reach US$300bn by
2021.
5.4. Performance
5.4.1. GDP and growth rate
Overview
During 2000–2007, economic growth averaged 2.84%. However, due to the financial crisis, the UK’s GDP contracted by
0.35% and 4.25% in 2008 and 2009, respectively. The economy rebounded in 2010 to register growth of 1.71%, and by
1.64% in 2011.
The economy rebounded to post respective growth rates of 2.05% and 2.95% in 2013 and 2014, led mainly by strong
domestic demand following a 1.45% growth in 2012. The economy made a marginal dip in 2015 by registering a
growth rate of 2.35%, and slowed to 1.79% in 2016 amid Brexit uncertainty. The economic growth was at 1.82% in
2017 and slowed down to 1.4% in 2018 due to the ongoing chaos over Brexit.

Economic Landscape
Figure 19: The UK – GDP and GDP Growth Rate (US$ Trillion), 2013–2023f
MARKETLINE
Source: Country Statistics, MarketLine

Economic Landscape
GDP composition by sector

Traditionally, industrial activity has been concentrated in the northern parts of the UK, while the southern region has
been driven by the services sector. Because of the relative decline in the importance of the industrial sector and surge
in activity in the services sector, the South has flourished while the North has developed at a slower pace. The
industrial sector accounted for 20.21% of GDP in 2018, while the services sector’s contribution stood at 79.16%.
Agriculture made up for the remainder (0.64%).
Figure 20: The UK – Economic Contribution to GDP by Sector (%), 2018e
MARKETLINE

Economic Landscape
Agriculture
Because of the UK’s high population density and relative scarcity of land, only around a third of total production is
devoted to arable crops, while the rest is devoted to livestock. The sector grew by an average annual rate of 3.22%
during 2013–2018, and MarketLine forecasts the sector to post a growth of 2.04% in 2019.
Figure 21: The UK – Agricultural Output (£ Billion), 2013–2018e
MARKETLINE

Economic Landscape
Industry
Much has been made of the steady decline in the relative contribution of industry to GDP over the past couple of
decades. The main commodities produced by the industrial sector are machine tools, electric power equipment,
automation equipment, railroad equipment, ships, aircraft, motor vehicles and parts, electronics and communications
equipment, metals, chemicals, coal, petroleum, paper and paper products, textiles, and clothing. The UK has a large
number of globally recognized industrial brands, and its main exports include manufactured goods, fuels, chemicals,
food, and beverages. According to MarketLine, the sector grew by 4.3% during 2013–2018, and MarketLine forecasts
the sector to grow by 2.37% in 2019.
Figure 22: The UK – Industrial Output (£ Billion), 2013–2018e
MARKETLINE

Economic Landscape
Services
The UK’s services sector has been consistently growing in importance over the past decade and now dictates the
economy. London is arguably the world’s largest financial center, and accordingly the UK’s services sector is
dominated by financial services. Tourism and education have emerged as important contributors. Public services and
defense have also contributed significantly. The services sector grew by 3.96% during 2013–2018, and MarketLine
forecasts the sector to grow by 3.2% in 2019.
Figure 23: The UK – Service Sector Output (£ Trillion), 2013–2018e
MARKETLINE

Economic Landscape
5.4.2. Fiscal situation
The government has embarked on fiscal consolidation over the past few years to bring down the deficit. As of 2018,
general government deficit stood at 1.42%, down from 1.85% of GDP in 2017. The deficit is expected to come down
further to 1.35% of GDP in 2019 and to 1.16% in 2020, according to the IMF.
5.4.3. Current account
The UK has maintained persistent current account deficits since the 1990s. According to the IMF, the deficit as of 2018
stood at 3.86% of GDP, widening from 3.34% of GDP in 2017. This deficit is forecast to widen to 4.15% of GDP in 2019.
5.4.4. Exports and imports
The UK’s major trade partners are almost exclusively within the EU. According to the International Trade Center (ITC),
the main destinations for goods and services produced in 2018 were the US (13.4%), Germany (9.6%), the Netherlands
(6.8%), France (6.5%), Ireland (5.8%), China (5.7%) and Switzerland (5.3%).
In 2018, the UK sourced its imports from Germany (13.7%), China (9.5%), the US (9.4%), the Netherlands (8.2%),
France (5.6%), Belgium (5.2%), and Italy (4%).
Exports increased from US$797.58bn in 2017 to US$866.55bn in 2018 and imports rose from US$849.83bn in 2017 to
US$901.49bn in 2018.

Economic Landscape
Figure 24: The UK – External Trade Position (US$ Billion), 2013–2018
MARKETLINE
5.4.5. International investment position
According to the United Nations Conference on Trade and Development Investment 2019 report, inward foreign
direct investment (FDI) inflow stood at US$64.49bn in 2018, down from US$101.24bn in the previous year.
Credit rating
In September 2019, Fitch Ratings gave the UK an AA rating but kept it in its Rating Watch Negative (RWN) outlook as
the UK’s exit from the EU poses significant risk to the economic prospects of the nation.

Economic Landscape
5.4.6. Monetary situation
Key monetary indicators

Inflation
The inflation rate, which averaged 0.69% during 2015 and 2016, due to lower commodity prices, increased to 2.56% in
2017 and 2.29% in 2018, crossing the 2% target set by the Bank of England. MarketLine forecasts the inflation rate to
ease to 1.87% in 2019.
Figure 25: The UK – Consumer Price Index and Consumer Price Index-Based Inflation (%),
2013–2023f
MARKETLINE
Interest rates
The most influential interest rate and the borrowing rate in the UK is the Bank of England’s base rate. As of September
2018, the base rate of the Bank of England was 0.75%, which has been kept unchanged since August 2018.

Economic Landscape
5.4.7. Employment
According to MarketLine, the unemployment rate fell from 4.40% in 2017 to 4.1% in 2018. In 2019, the unemployment
rate is forecast at 4.25%, according to MarketLine.
Figure 26: The UK – Unemployment and Unemployment Rate (Millions/%), 2013–2023f
MARKETLINE
5.5. Outlook
Brexit does not bode well for the economy. The Office of Budget Responsibility has forecast the economic growth rate
of 2019 and 2020 to be slightly below its March 2019 forecast, as uncertainty over Brexit weighs over the economy.
However, from 2021 onwards growth is expected to resume. The depreciation of the pound is expected to choke
household incomes in 2019. Weakening house prices have aggravated the problem of indebtedness.

Social Landscape
6. Social Landscape
6.1. Summary
The UK is one of the most densely populated developed countries in the world. Aside from the civil liberties and rights
afforded to individuals by the government, residents have access to a leading social welfare system. The majority of
the population relies on public healthcare services, and there are special projects to care for children, the
unemployed, the disabled, and the elderly. The education system is world-renowned and attracts a large number of
international students. The UK is home to people from a number of countries. A cause for concern is a rapidly aging
population, which poses a number of social, economic and political challenges.
6.2. Evolution
Since World War II, the UK has developed into a multicultural, multi-ethnic and secular country with a large white
majority and minority communities from all over the world. In contrast with some European countries, immigration is
contributing to a population increase. The Labour Party came into power in the UK shortly after World War II and
focused on an approach that leaned left, in line with public opinion at the time. The years between the world wars
saw the Conservative Party associated with widespread poverty and mass unemployment, so the Labour government
focused on industrial development and the creation of a solid social infrastructure. The concept of the welfare state
was introduced and several industries were nationalized. The establishment of the National Health Service (NHS) in
1948 is one of the party’s biggest achievements.
The victory of Thatcher’s Conservative Party in the 1979 elections brought about a change of direction for the UK’s
economy. The government was more focused on involving the private sector and developing the economy as a whole
rather than on the creation of a welfare state. More recently, the Labor government of the late 1990s and 2000s
adopted the “third way”, a combination of all previous approaches to governance.
In September 2016, the government stated its intent to overhaul retirement reforms. A pilot version of a pension
online dashboard began in March 2017. In April 2019, the Department for Work and Pensions expressed its intent to
set up a dashboard delivery group by 2019 under the Money and Pension Service’s supervision, which is a consumer
guidance body of the government. Individuals will be able to access all pension related data from the dashboard by
themselves.

Social Landscape
6.3.1. Demographic composition
Composition by age and gender

Approximately 17.59% of the UK's population was below the age of 15 and around 18.19% was above 65 in 2018,
according to MarketLine. In 2018 the UK’s median age was 40.5 years.
Figure 27: The UK – Population by Age and Gender (as Percentage of the Total
Population), 2018e
Population by age Female Male
5.80 6.15
0–4
5.75 6.10
5–9
5.52 5.86
10–14
5.32 5.63
15–19
6.08 6.39
20–24
6.73 7.04
25–29
6.65 7.01
30–34
6.25 6.68
35–39
5.77 6.18
40–44
6.69 7.07
45–49
7.20 7.33
50–54
6.68 6.62
55–59
5.63 5.53
60–64
5.24 4.93
65–69
5.08 4.59
70–74
3.57 3.00
75–79
6.05 3.90
80+

Social Landscape
Religious composition
The UK’s largest religion is Christianity, which accounted for 59.5% of the total population in 2011. Historically, the
Church of England and the Church of Scotland had significant roles to play in British society. The UK has evolved as a
secular society that embraces people of various faiths. Due to the large number of residents with ethnic roots in the
Indian sub-continent, in 2001, Muslims, Hindus, and followers of other religions accounted for a large section of the
total population. Some 25.7% of the population does not follow a religion.
Figure 28: The UK – Major Religions (%), 2011
6.3.2. Education
System of education
Schooling is compulsory for all children aged between five and 16, and most children attend government-funded
schools. The UK is famous for its educational institutions, especially its higher education institutions, which attract
students from all over the world.
While the systems in place in England, Wales, and Northern Ireland are broadly similar, Scotland has a different
educational system. The Education Reform Act of 1988 introduced the National Curriculum for state primary and

Social Landscape
secondary schools in England, Wales, and Northern Ireland. Independent schools, which do not depend on the
government for funding, can decide on their own curriculum.
In general, the National Curriculum attempts to focus on a greater depth of knowledge across a narrower range of
disciplines, while the Scottish Curriculum attempts to focus on a broader range of disciplines. The National Curriculum
covers core subjects, foundation subjects, and basic curriculum subjects. Core subjects include science, mathematics,
and English; foundation subjects include history, geography, art and design, music, technology, ICT, and modern
foreign languages; and the basic curriculum includes citizenship, religion, and physical education.
Primary and secondary education

Parents may choose to enroll their children in pre-school activities such as playgroups or nursery school before
sending them to primary school. Children usually begin attending primary school between the ages of four and six.
Parents can send their children to a local school, which must accommodate them without imposing any special
conditions. The first year of secondary education usually starts between the ages of 11 and 13. Students who go on to
pursue higher education are usually between the ages of 17 and 19.
Tertiary education
The majority of students who wish to pursue higher education use the Universities and Colleges Admissions Service,
although for certain courses different admission services may be required. While the UK’s universities are not owned
by the state, the government finances most.
6.3.3. Healthcare
The NHS was established in 1948 as the single authority for public health in the UK. Since the devolution of power, the
constituent countries of England, Scotland, Wales and Northern Ireland each have their own services that are mainly
funded through public taxation. While independent healthcare organizations do exist, the health services of the
constituent countries provide the majority of healthcare services.
The Health and Social Care Act of 2012 was passed to curtail burgeoning costs against the backdrop of the UK’s aging
population. While the government argues that the reforms will reduce costs by 45% and expand treatment options, it
remains to be seen if it can bring significant change.
In August 2019, the new prime minister of the UK pledged to inject £1.8bn in the National Health Service to upgrade
and develop 20 hospitals in the country of Lincolnshire, England, Scotland, Wales and Northern Ireland among others.

Social Landscape
6.4. Performance
6.4.1. Healthcare
The UK’s total healthcare expenditure stood at US$254.16bn or 9.7% of GDP in 2017, according to MarketLine.
Doctors per 1,000 population stood at 2.9 in 2018, lower than France (3.4). Nurses per 1,000 citizens stood at 7.8 in
2018, also lower than France (10.8).
Figure 29: The UK – Total Healthcare Expenditure (US$ Billion), 2008–2017
6.4.2. Education
According to OECD’s Education at a Glance 2018 report, the UK has a high number of people with a tertiary education
as of 2017 when compared to other OECD nations. In the 25–34 age group, the UK’s percentage of tertiary education
population was 52.0% compared to its peers Italy (27.0%) and Germany (31.0%). The UK’s public expenditure on
education stood at US$171.96bn in 2016, an increase of 6.6% over the previous year.

Social Landscape
Figure 30: The UK – Public Education Expenditure (US$ Billion), 2007–2016
6.5. Outlook
The overhaul of the UK’s pension system is considered a step in the right direction; however, the government faces a
number of challenges when it comes to maintaining the level of public services on offer. Given the fact that the
budget deficit is a clear point of concern for authorities, the challenge of maintaining current levels of expenditure on
social welfare projects is looming. Government expenditure and revenue have increased dramatically, but expenditure
has outpaced revenues to quite an extent. The government has publicly declared its goal of eliminating child poverty
by 2020, but a recent forecast shows a likely increase in child poverty by the end of this decade. The passage of
Immigration Act 2016 has stipulated stricter conditions on illegal immigrants and asylum seekers.

Technological Landscape
7. Technological Landscape
7.1. Summary
The UK is at the forefront of R&D and innovation. The government has helped to establish an environment conducive
to the development of new technology in all sectors of industry. Expenditure on R&D and other measures to
encourage R&D within the private sector have borne fruits, and the UK has emerged as a key exporter of technology.
The Department for Innovation, Universities and Skills (DIUS) is the government department that oversees the
progress of the UK in this regard. The DIUS envisions its role as involving the creation and maintenance of a “world-
class research base” and utilizing this research base to “support innovation across all sectors of the economy”.
A few industries stand out in terms of innovation. Pharmaceutical, defense, e-commerce, and telecommunications
firms are competitive with their international counterparts. In the face of increasing global competition, innovation
will help developed countries to compete with emerging economic powers. The UK has the world's largest aerospace
industry outside of the US. Aside from being a key supplier of aerospace requirements, the country also excels in all
fundamental areas of research; it develops advanced technology for nanomaterial and the usage of wave and tidal
energy.
7.2. Evolution
The Royal Society, which is the national academy of science in the UK and the Commonwealth, is the most prestigious
source of innovation in the UK. It was established in 1660, and since 1850 it has been the beneficiary of government
support. In subsequent years, many research centers were established in various scientific streams. These include the
Biotechnology and Biological Sciences Research Council, the Council for the Central Laboratory of the Research
Councils, the Medical Research Council, the National Environmental Council, and the Particle Physics and Astronomy
Research Council. There are also many private R&D centers in the UK.
7.3.1. Intellectual property
The UK Intellectual Property Office, an executive agency of the DIUS, is the official body responsible for granting
intellectual property rights in the UK, including trademarks, designs, patents, and copyright. Direct administrative
responsibility for the examination and issuing of patents lies with the UK-IPO. The number of patents received by the
country was 7,552 in 2018, higher than France (6,988) but below than that of Germany (17,433), and Japan (50,020),
according to MarketLine.

Table 9: The UK – Comparative Performance on Receipt of Patents, 2012–2018
Year The UK France Germany Japan
2012 5874 5857 15041 52773

2013 6551 6555 16605 54170
2014 7,232 7,144 17,926 56,639
2015 7,143 7,034 17,485 54,487
2016 7,289 6,907 17,568 53,046
2017 7,633 7,365 17,998 51,743
2018 7,552 6,988 17,433 50,020
7.4. Performance
7.4.1. Opportunity sectors
Telecommunication services
According to MarketLine, mobile penetration stood at 120.09 per 100 people in 2018 with total subscribers at 79.86
million. As of 2018, internet users stood at 63.70 million, with a penetration rate of 95.8% in the same year.

Figure 31: The UK – Internet Users (Millions/% of Total Population), 2013–2018e
Aerospace and defense market in the UK

According to MarketLine, the total value of the aerospace and defense market of the UK was US$65.62bn in 2018,
largest in the European region. The value of the industry in France was at US$37.59bn and for Germany at US$47.32bn
in 2018. The sector in the UK is forecast to increase to US$67.06bn by 2023.
7.5. Outlook
As the UK is at the forefront of new technology, there is a strong possibility of it developing relatively nascent fields
such as nanotechnology, space research and tourism, and alternative energy. However, cyber threats remain a
challenge to security systems. According to the Government AI Readiness Index, published by Oxford Insights and
International Development Research Centre (IDRC), the UK ranked as the second best place out of 194 countries to
take advantage of AI technologies for public services. Along with the country’s aim to increase its R&D funding for AI
to 2.4% of GDP by 2027, the multi-pound investment program on AI is a bright prospect for the country in
technological advancement.

Legal Landscape
8. Legal Landscape
8.1. Summary
The UK’s judicial system is considered to be one of the fairest and most transparent systems in the world. Scotland
and Northern Ireland each use different legal systems, but both are based on the same fundamentals. There are a
number of laws governing businesses in the UK. These laws are largely conducive to the business environment. The
most important laws relate to the incorporation of business, taxation, monopolies, and restrictive trade practices,
intellectual property rights (IPR), and labor laws.
8.2. Evolution
There are three different legal jurisdictions in the UK, with each having its own legal system; these are based on
English law, Northern Irish law, and Scots law. English law uses a common law system, while the law of Northern
Ireland is based on the common law system and is partly influenced by English law. Scots law is influenced both by
the ancient Roman law and by civil law, and as a result, it is called a mixed legal system. Laws pertaining to the
commercial and business sector are common for the whole region. Although the labor law was formed in 1823, all
laws were amended after the formation of the EU. Similarly, all laws relating to company law, commercial law,
competition law, and IPR have been amended.
8.3.1. Structure of the judicial system
The UK does not have a single criminal or penal code, and there is an emphasis on the separation of the judiciary and
the prosecuting authorities. England and Wales, Scotland, and Northern Ireland have separate legal systems.
Common law principles apply for English and Northern Irish law, while civil law principles alongside some elements
of common law form the bedrock of Scots law. For England, Wales, and civil cases in Scotland, and Northern Ireland,
the Supreme Court is the highest court. In terms of criminal cases in Scotland, the highest court is the High Court of
Justiciary. In the past, the structure of the judicial system has been criticized for its lack of transparency and for being
archaic. In response to this criticism, the Constitutional Reform Act 2005 was passed, laying the foundation for the
establishment of the Supreme Court of the UK, which started functioning in 2009 and took over the House of Lords'
jurisdiction as the highest court in the land. The Supreme Court hears all appeals from England, Northern Ireland,
and Wales, and civil appeals from Scotland.
8.3.2. Tax regulations

© MarketLine. This report is a licensed product and is not to be photocopied Page 75
Legal Landscape
Corporate income tax

The corporate tax rate is 19% as of 2019, which has been reduced by the government of the UK by 1% effective from
April 1, 2017.
Individual income tax

Income tax rates are progressive, with a maximum of 45% beyond £150,000 as of 2019.
Value added tax

As of 2019, the standard VAT rate is 20.0%. A reduced rate of 5% is applicable to certain items. Zero-rated
exemptions are also applicable to some specific items.
8.4. Performance
8.4.1. Effectiveness of the legal system
According to the 2019 Index of Economic Freedom, the UK ranked seventh in the world and third in Europe. The
country scores high on the parameters of property rights, business freedom, labor freedom, monetary freedom,
trade freedom and investment freedom. In the World Bank’s Ease of Doing Business 2019 ranking, the UK ranked
ninth out of 190 countries. On average it takes 4.5 days to start a business in the UK, as compared to the OECD
average of 9.3 days. In the Global Competitiveness Index 2018 Report, the UK ranked 11th in the parameter of
efficiency of legal framework in settling disputes out of 180 countries.
8.5. Outlook
The government is focused on creating the best business environment in the G20. Through reforms and
deregulation, it aims to encourage more investment – the latest incentive being a reduction in corporate tax to 19%
in 2017. The patent box regime, an incentive scheme that would encourage businesses to retain and commercialize
existing patents and to develop patented products, has been effective from 2013. This will incentivize the creation of
high-value jobs and activity linked with the development, manufacture and exploitation of patents. According to
World Bank’s Doing Business Report, the UK government has adopted a number of reform measures that are
expected to make the country more conducive for the investors. In 2015, the country’s tax registration process was
made easier. In 2019, several initiatives were taken to accelerate the electricity connection works performed by the
sub-contractors, thereby speeding up the process to getting electricity.

Environmental Landscape
9. Environmental Landscape
9.1. Summary
In the UK, the Department for Environment, Food and Rural Affairs (DEFRA) holds the responsibility for drafting and
implementing environmental protection and sustainable development policies. DEFRA identifies its priority as “the
need to tackle climate change internationally and through domestic action to reduce greenhouse gas emissions, and
to secure a healthy, resilient, productive, and diverse natural environment”. Environmental policy in the UK now
aims to tackle air, water, noise, and land and soil pollution as separate problems.
9.2. Evolution
The first initiative geared toward the environment in the UK was the establishment of the Control of Pollution Act
1974, followed by the Environmental Protection Act 1990 (EPA), the Water Resources Act 1991, and the Land
Drainage Act 1991. Environmental conservation activities in the UK were increased with the establishment of the
Environmental Act 1995. This act brought the following institutions under its control: the National Rivers Authorities,
Her Majesty's Inspectorate of Pollution, the waste regulation authorities in England and Wales, and the London
Waste Regulation Authority. In December 2018, the government of UK published a draft Environmental Bill that has
outlined the proposals of green governance post Brexit.
9.3.1. Environmental regulations
DEFRA is the government department responsible for environmental concerns in the UK. DEFRA’s aim is to “enable
everyone to live within our environmental means”. Traditionally, environmental policy in the UK has been based on
the command and control principle, whereby possible polluters are given certain quotas or standards and are
monitored by authorities. The concept of integrated pollution control prescribed in the EPA looks at dealing with
pollutants in such a way that their harmful effects on the environment are reduced. The environment laws and
policies are governed by EU laws. However, post Brexit the new policies under the draft environmental bill will come
into effect.
9.4. Performance
9.4.1. Environmental impact

The UK has made improvements in reducing the impact of its economic growth on the environment. It has achieved
strong progress in controlling major air pollutants and agrochemicals. This progress reflects both the reshaping of
the economy and the strengthening of the UK’s environmental policies. According to the Department for Business,
Energy and Industrial Strategy (BEIS), 33% of electricity was from renewable sources in 2018 up from 29.2% in 2017.
The UK has envisaged increasing the share of renewables in total energy consumption to 20% by 2020 from 11% in
2018. As a result of the UK’s attempts to meet its target, CO2 emissions in the country came down from 502.4
million tonnes in 2010 to around 379.15 million tonnes in 2017, declining at an average annual rate of 2.9% during
the period.
Figure 32: The UK – Carbon Dioxide Emissions (Million Metric Tons) and Growth (%), 2010–2017
9.4.2. The renewable energy market
According to MarketLine, the industry value of the UK renewable energy market was US$22.28bn in 2018,
representing a compound annual growth rate (CAGR) of 16.27% during 2014–2018. In comparison, the French and
German markets posted respective CAGRs of 8.74% and 9.03% to value US$23.09bn and US$69.60bn.
9.5. Outlook

The UK parliament (both the houses) has set ambitious environmental targets based on 2008–2009 baselines to
reduce
 CO2 emissions by 34% by 2020/21
 Water consumption by 50% by 2020/21
 Weight of waste generated by 30% (and recycle 75% of the waste generated by 2020/21)
The government of UK has also amended it targets of carbon neutrality from 95% to 100% by 2050. Scotland had
committed to net zero carbon emissions by 2045. Due to the importance of the farming industry in the Wales, the
Committee on Climate Change (CCC) had recommended Wales to reduced emissions by 95%, but the Wales
government committed to make the country carbon neutral by 2050 like the rest of the UK.

Appendix
10. Appendix
10.1. Ask the analyst
We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If
you have any questions or further requirements, MarketLine's research team may be able to help you. The
MarketLine Research team can be contacted at ReachUs@MarketLine.com.
10.2. About MarketLine
At MarketLine, we deliver accurate, up-to-date insights on over 30,000 companies, 300 industries, and 215
countries, as well as the latest news and financial deal information from within your market and across the globe.
Established in 1997, when the Internet was in its infancy, we recognized the need for a convenient and reliable data
service to help our clients understand local and global markets and the companies operating within them.
In today’s information-rich world, sifting fact from fiction to pick out what’s relevant and what’s up to date has
become the new ‘holy grail’ in business information provision.
Our 170 dedicated research professionals aggregate, analyze, and cross-check facts in line with our strict research
methodology, ensuring a constant stream of new and accurate information is added to MarketLine every day.
10.3. Disclaimer
All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher,
MarketLine.
The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note
that the findings, conclusions and recommendations that MarketLine delivers will be based on information gathered
in good faith from both primary and secondary sources, whose accuracy we are not always in a position to
guarantee. As such MarketLine can accept no liability whatever for actions taken based on any information that may
subsequently prove to be incorrect.


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The United Kingdom

In-depth PESTLE insights

Country Profile Series

Report Code: ML00002-031

1.2.1. Key findings

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1.2.2. PESTLE highlights

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1.2.3. Key fundamentals

Table 1: The UK – Key Fundamentals, 2016–2023f

2016 2017 2018 2019f 2020f 2021f 2022f 2023f

GDP, constant 2010 prices, per capita

Source: Country Statistics, MarketLine MARKETLINE

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2. KEY FACTS AND GEOGRAPHIC LOCATION 15

2.1. Key facts 15

2.2. Geographical location 16

3.2. Political analysis 18

3.2.5. Future risks 19

3.3. Economic analysis 22

3.3.3. Current challenges 23

3.4. Social analysis 30

3.4.4. Future prospects 31

3.5. Technology analysis 34

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3.5.2. Current strengths 34

3.5.5. Future risks 36

3.6. Legal analysis 37

3.6.3. Current challenges 38

3.7. Environmental analysis 41

3.7.4. Future prospects 42

4.3. Structure and policies 48

4.3.5. Key political parties 49

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5.3. Structure and policies 55

6.3. Structure and policies 66

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7.3. Structure and policies 72

8.3. Structure and policies 75

9.3. Structure and policies 77

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10.1. Ask the analyst 80

10.2. About MarketLine 80

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Figure 4: The UK – Total Capital Ratio (%), 2014 Q1–2019 Q1 26

Figure 10: The UK – Gini Coefficient and Relative Poverty, 2014 33