Introduction or resources produced in the primary sector


The purpose of the report it to analyze the structural changes that have taken place in the economy of the UK. The economy of the United Kingdom is ranked as the sixth largest economy in the world in terms of its Gross Domestic Product and its purchasing power parity (PPP). Its economy is ranked third in Europe after that of Germany and France while its financial market is the second largest in the world after that of the United States. The United Kingdom which is made up of London, England, Wales, Scotland and Northern Ireland is home to the world’s largest banks and companies such as Barclays Bank, HSBC, CitiGroup, BP (British Petroleum), GlaxoSmithKline, Rolls-Royce and British Airways. The capital of the UK, London, is seen to be one of the largest financial centres in the world as it the city with the largest GDP in Europe and it is also home to 100 out of the 500 large European corporations. The economy of the UK has undergone significant changes such as the declining significance of the country’s industrial outputs and the declining employment levels in the service industry. The industries that make up the UK economy include forestry, fishing, and agriculture. There is a populist view that the UK economy is more of an industrial economy with manufacturing being the main industrial sector in the country.

In 2003, manufacturing contributed to 16 percent of the total output of the economy and it also provided employment to over 5 million people in the same year. The manufacturing sector has been viewed to be important to overseas trade accounting for 83 percent of exports from the country in 2003. The companies that fall under the manufacturing industry include Rolls-Royce, Airbus, BAE Systems (Broadberry and O’mahony 2004).

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Structure of the UK Economy

The structure of any economy is usually made up of components or parts referred to as sectors. Sectors includes groups of industries such as the manufacture, engineering, service and production industries or parts of an industry such as the tourism industry, transport industry, or the hotel industry which fall under the service industry sector. An analysis of structural change is usually done on the three sectors that make up an economy which are the primary, secondary, tertiary, production and goods sector. To be noted is that the prime division in the economy incorporates several companies that are openly associated with the expected reserves of the environment. Such activities include mining, agriculture, forestry, oil excavation and mineral extractions (Broadberry and O’mahony 2004). The secondary sector deals with activities related to the production of goods in the economy.

These activities include the processing of raw materials or resources produced in the primary sector so at to create a completed good. The main component of this sector is manufacturing which encompasses production and other activities such as construction, production and manufacture of public utility industries such as gas, electricity and water. The tertiary sector includes all the activities in the private sector that might need some form of service such as distribution, transportation, health, financial services and banking. The goods sector is a combination of both the primary and secondary sector to produce a tangible commodity for consumption while the production sector includes all the manufacturing activities of the secondary sector apart from the construction industry (Griffiths and Wall 2007).

Changes in the Structure of the Economy

The changes in the structure of an economy are defined as changes in the relative size of the various sectors that make up that economy. The changes in relative size are measured by determining the sectors output and its contribution to the Gross Domestic Product of the economy or the amount of inputs that have been used by the sector to produce goods or services. Inputs are usually raw materials, capital and labour with labour receiving more attention because it is easier to measure than capital.

Given a certain level of inputs and outputs, the structure of an economy is expected to change over a period of time. The patterns of demand for a country’s products are noted to change with the variations in income or expectations of individuals. These variations in turn affect the output and input levels that are needed to manufacture or produce a good (Griffiths and Wall 2007). If there is economic growth and an increase in real income, the demand for goods and services will increase in tandem with price elasticise. For example between 1983 and 2005, the real household expenditure grew by 87 percent while the expenditure on financial services increased by 185 percent. The economic growth of a country and the patterns of demand are also affected by the changes in demographics.

The UK has experienced an increase in its population which has in turn necessitated an increase in the construction and building industry for housing as well as an increase of food consumption. Other changes that affect the economy of a country are fluctuations in the labour market for example in the 1990s there was a reduced supply of young graduates into the UK labour market. This saw the young people in the job market and those already employed earning a higher salary when compared to the other workers. This encouraged supermarkets, small stores and small firms to hire older workers as their hiring salary was lower than that of the younger workers (Griffiths and Wall 2007). The availability of resources such as minerals, coal, and gas has also initiated structural changes in the economy. In the UK, the economy faced a major structural change in 1973 as a result of the unavailability of oil. This was as a result of the oil producing countries restricting the world output of the product which saw oil based products retailing at a higher price.

The higher prices also saw an increase in the demand for substitute products such as gas and coal and there was a widespread consensus in the manufacturing industry to limit the amount of energy that was used in the production process. This resulted in a decline in oil output and employment in public utility industries that dealt with oil, gas or coal (Griffiths and Wall 2007). Oil also affected the exchange rate of the UK which in turn affected the structural aspect of the economy. This change occurred in 1980 due to the North Sea oil production developments that enabled the country to be self sufficient when it came to oil production. The UK’s currency known as the sterling pound would therefore be subject to changes if there were any changes in oil prices. During 1979 and 1983 when the price of oil was high, the sterling pound was higher than it had ever been since its inception.

The result of the high exchange rate necessitated making imports cheaper so that the level of competition the UK faced from the international world was reduced. International competition is another factor that has proven to be a strong force in changing the structural economy of the UK. The changing consumer tastes which have seen new innovations in products and changes in comparative costs have resulted in a redistribution of economic activities in the international arena. The collapse of the UK motorcycle industry was mostly attributed to the emerging Japanese motorbike industry and the failure of UK motorbike manufacturers to meet the consumer demands for faster, lighter and reliable motorcycles which Japan was able to manufacture. The formation of the European Union also affected the structure of the economy in UK as countries that accepted membership into the union had to undergo some form of restructuring to their economies (Griffiths and Wall 2007). Other changes that have taken place in the structure of UK’s economy include the 2009 global recession that saw a plunge in the real estate market and the shutting down of various companies and banks due to the high interest rates. The collapse of the many companies saw an increase in the unemployment levels in country with some companies laying off their workers while other companies such as British Airways choosing to reduce the amount of wages and benefits that are entitled to their employees.

The sterling pound dropped by 30 percent during this period which was the lowest it had been in years (London School of Economics 2009).

Three Main Sectors of the UK Economy

The three sectors that make up the UK economy include the primary sector, the secondary and tertiary sector. The primary sector of the UK economy is made up of agriculture, forestry, hunting and fishing while the secondary sector is made up of the manufacturing, construction, public utility and production industry. The tertiary sector is made up the transportation sector, education and healthcare, financial services such as banking, real estate and social security. The primary sector of the economy saw a slow growth in agriculture, forestry, hunting and fishing during the 1970s and 80s. In the mining and quarry sector, the output of coal continued to fall during the 80s and 90s while the gas and oil industry grew during the 1970s and early 80s.

The output of coal eventually increased due to the high oil prices that were prevailing in 1973 and 1979. The oil price shocks improved the coal industry but not for long as the North Sea oil developments that were taking place during the same period were acting as a substitute for coal. The output of coal eventually fell by 30% between 1979 and 1990, going further down by 85% between 1990 and 2005 as manufacturing companies shifted to the use of gas in their production activities (Griffiths and Wall 2007). In the secondary sector, the output from the manufacturing rose by 2.9 percent while that of the construction industry rose by 1.

8 percent between 1964 and 1973. Between 1973 and 1979, the output from these two sectors continued to drop even during the 1981 economic recession. Manufacturing outputs fell by 14 percent during the recession of 1981 and 1992-93. The output eventually increased by 6.3 percent which was 11.7 points higher than the output recorded in 1973. This slow growth of manufacturing outputs was noted by economists to represent virtual stagnation. The output of the construction sector was similar to that of the manufacturing industry during 1973 to 1980 (Griffiths and Wall 2007).

During the recession of 1981, the construction sector underwent a rapid growth that saw a high output of 66% or 40 points. This output however fell by 7.7 percent in 1990 and 2001 before increasing again to an output of 14 percent between 2001 and 2005. The public utility industry in the UK that deals with gas, electricity and water did not face any of the volatilities that faced the manufacturing and construction industry. The output from the public utility sector was in tandem with the GDP and it was not affected by the various global recessions that have affected the other industries in the secondary sector (Griffiths and Wall 2007). The tertiary sector which entails offering services to the primary sector involves financial services, tourism, communication, education and transport services. The financial sector in the UK is most notable in London which is the largest financial centre in the whole of Europe.

Central London offers financial services that are unique and specialised when compared to the other financial centres in the UK. London has evolved into a place that allows for local and foreign based companies to conduct their financial transactions and businesses. This was notable in 2007 when there were 54,000 jobs created as a result of foreign based financial companies that had established themselves in the city. London is also home to many overseas banks such as Citigroup and its stable market ensured that its financial market was not affected by the recent global recession (LSE 2009).

The table below shows how the output from the various tertiary sectors grew between 1964 and 1979. The output fell slightly during the recession in 1981 but continued to increase between 1990 and 2005. The most notable sectors with high outputs in the tertiary industry were the communications industry, the real estate sector and the financial service industry (ONS 2006).


The UK economy has gone through very many changes that have affected its structure over the years with the most notable effects being variations in output levels in the various sectors that make up the economy. The global recessions that took place in 1979-1981 and the recent global recession have also affected the country’s structural economy.

The economy is however deemed to grow in the present and in the future due to the growing manufacturing industry in the country.

Table of outputs from the various sectors of the United Kingdom’s Economy

196419731979198119902005Primary Sector Agriculture, hunting, forestry and fishing Mining and quarrying -Coal and nuclear fuel -Oil and gas extraction55.0 187.0 295.0 –69.5 104.3 166.1 –71.3 109.2 144.4 88.881.2 115.7 143.8 99.2100 100 100 100103.5 107.3 21.9 134.7Secondary Sector Manufacturing Construction Electricity, gas and water supply72.6 65.9 45.394.6 77.4 69.690.6 69.4 80.477.7 60.5 81.9100 100 100106.3 114.1 139.8Tertiary Sector Distribution, hotels and catering Transport and storage Post and telecommunication Financial, intermediation, real estate Public administration and social security Education, health and social work Other services GDP Production industries61.0 60.2 30.6 27.6 85.1 57.9 51.8 58.7 62.676.0 79.3 50.2 42.3 98.0 76.5 59.0 74.9 81.476.6 81.5 59.7 49.6 98.0 92.4 68.3 80.0 87.669.9 77.9 62.7 54.3 102.2 94.2 70.5 76.5 78.9100 100 100 100 100 100 100 100 100151.3 152.2 274.2 161.1 115.1 141.3 168.2 140.7 107.2


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