UK - Analysis Report

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United Kingdom
In-depth PESTLE Insights
Publication Date: May 2010

This profile analyzes the political, economic, social, technological, legal and environmental structure in the United Kingdom. Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future risks.

Key findings
Strong democratic system, but the threat from terrorism continues to be high The UK adheres to a democratic, parliamentary system of governance known as the Westminster system. The structure of the administration ensures that there is an adequate separation of powers between the executive branch, led by the prime minister, the bicameral legislature and the judiciary, and that there is a system of checks and balances in place. As the governance indicators illustrate, the UK is one of the most successful nations in terms of the application of rule of law, control of corruption, government effectiveness and regulatory quality. Furthermore, according to the World Bank's governance indicators for 2008, the country was given a high percentile rank of 94.3 on government effectiveness. The heavy involvement of the UK in the war on terror in Afghanistan and Iraq seems to have had some negative consequences. The threat of terrorism is being taken more seriously than before. The July 7, 2005 bombings in London brought the capital to a standstill. The public threats issued by various Islamic fundamentalist groups such as al-Qaeda are a clear indication of the constant danger that they pose. Foiled terrorist attacks have also served to put the government and the public on edge. In March 2010, the UK's intelligence and security service has said that terror threats linked to Pakistan continues to be the primary area of concern. Sluggish growth in the economy The country attained a high growth rate of 2.8% in 2007, but economic deceleration began in 2008 and the GDP growth rate fell to 0.7%. In 2008, the economy entered into a recession, with a predicted negative growth rate of -4.5% for the

United Kingdom: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. This brief is a licensed product and is not to be photocopied

Published 05/2010 Page 1


following year. The recessionary trend in the UK has worsened beyond expectation since the last quarter of 2008. The economy shrank by a sharp 1.6% in that quarter; the worst slide since 1980. The decline has continued in 2009 with falling consumption and investment demand. External demand has also remained weak because of a slowdown in the global economy. Furthermore, economic problems have adversely affected the country's employment rates. The crisis is expected to lead to a sluggish growth in 2010 because of the huge fiscal deficit coupled with new borrowing programs. Although the deficit fell from 3.4% of GDP in 2003 to 2.7% in 2007, it increased to 5.6% of GDP in 2008, owing to large-scale government expenditure programs. Due to lower tax revenues, the government’s finances have also taken a hit due to increased state spending, which is intended to boost the economy. This increased expenditure included the bailing out of ailing banks. With one month of the current fiscal year remaining, the deficit stood at GBP132 billion ($198 billion). Such fiscal health problems will pose serious hurdles to economic revival. The country has high standards of living, but income inequality is still apparent A recent report released by the UN declared that, for the first time in more than 100 years, the standard of living in the UK had surpassed that of the US. According to the Human Development Index 2008–09 published by the United Nations Development Program (UNDP), the UK ranks 21st in terms of human development. However, the government is faced with the challenge of income disparity. Relative inequality has increased and the government has fallen short of its targets in...
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