PESTLE Analysis of UK

(P)olitical Analysis

The UK government is taking measures to address the deteriorating economy, which include a mix of monetary and fiscal initiatives. In January 2009, it announced a slew of measures to help revive ailing banks and restrict growing unemployment. The 2009 Budget, , tax rates on the highest income group were revised upwards from 45% to 50%. This measure is expected to help revive the economy in the UK.

• Government stability

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 2007, the country ranks as satisfactory on political stability.

(E)conomic Analysis

• GDP trend

GDP growth was robust during the years 2000-06, with the highest growth rate of 3.8% recorded in 2000. After attaining a high growth rate of 3% in 2007, economic deceleration began in 2008 and the GDP growth stood at 0.7%. In 2008, the economy entered a recession with an expected negative growth rate of 2.8% for the following year.

While the UK economy continues to benefit from robust economic growth, the major part of this growth occurs in London and the south east. Traditionally, industrial activity has been concentrated in the northern parts of the country while the south has been driven by the services sector. As a result of the relative decline in the importance of the industrial sector and the surging activity in the services sector over the past decades, the south has flourished while the north has developed at a much slower pace. While the industrial sector accounted for close to 34% of GDP in 1990, its share of GDP in 2008 was 28%. The services sector’s contribution stood at 76%, while the rest was contributed by agriculture.

• Interest rates

The BoE follows an inflation-targeting system wherein percentage increases in the consumer price index are to be maintained at around 2%. Changes in the interest rate are the primary measure of control that the Bank’s MPC uses to maintain inflation at the desired level. The UK interest rate futures rallied sharply in August 2008 after the BoE’s Inflation Report raised financial markets’ expectations that an interest rate cut could be delivered before the end of the year. In January 2009, the BoE cut interest rate to 1.5%, the lowest level in its 315 years history. The interest rate reached another historic low in March 2009, when the central bank cut the rates to 0.5%. This was the sixth rate cut since October 2008.

This rate cut is expected to expand money supply in the system by boosting bank lending. The bank has also resorted to quantitative easing, increasing the money supply by £150 billion.

• Inflation rate

The inflation rate increased from 3.19% in 2006 to 4.29% in 2007. However, following the global trend, it declined in 2008 to 3.72%. The downward trend continued in the first three months of 2009. In March that year, it stood at 2.9%, down from 3.2% in February. This fall largely came from lower oil prices besides declining housing and household services. Food and beverages and transport costs also added to the downward spiral.

• Unemployment level

The economic slowdown has adversely affected the creation of jobs in the country. The unemployment rate was close to 5.7% in 2008 and reached around 6.5% in March 2009. Nearly two million people were unemployed in March 2009, which was the highest in 12 years. According to the European Commission estimates, unemployment will jump to 7.1% by the end of 2009, which will be lower than the EU average of 7.8% for the year.

• Devaluation

In 2008, the pound sterling lost more than 25% of its value against the euro and dollar. The currency is expected to weaken further in 2009 as there have been effective interest rate cuts and the economic growth prospects remain bleak. The UK has had a current account deficit since the 1990s. Earlier, this did not bother the policy-makers; however, the deficit growing magnitude has become a matter of serious concern as the widening current account deficit will also raise the country’s already high external debt. A falling sterling will ease the current account deficit position, which has been a burden for the economy.

(S)ocial

• Age distribution of population

In the UK, the working age population (between the ages of 15 and 64) accounts for 67% of the total population, while 17.2% of the population are 0-14 years old and 15.8% are over 65. This problem will only be exacerbated by the rapidly ageing population. As the dependency ratio rises, it becomes more difficult to maintain the standard of living of the dependent population, because the relatively shrinking workforce is put under strain. The government faces the challenge of balancing the social welfare system to account for these future developments. Reforms need to take place soon and are required especially in the pension and healthcare systems, if they are to be able to deal with the excessive burden that is bound to be placed on them in the not-so-distant future.

• Health Care

The UK healthcare system is one of the most successful social ventures in the world. Public expenditure on health in the UK has traditionally been very high in order to be able to maintain the quality of the service provided. All residents of the UK, residents of countries that belong to the European Economic Area (EEA) and residents of countries which have bilateral healthcare agreements with the UK are all eligible for National Health Service (NHS) care.

• Level of education

The educational infrastructure in the UK is considered to be of very high quality. The nation’s tradition of education dates back hundreds of years and is constantly evolving. UK qualifications are both recognized and respected throughout the world. There are above 2.2 million students currently studying a wide range of higher education courses in the country, while almost 630,000 people graduate every year from its universities.

• Income

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. 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 reducing poverty, especially child poverty.

(T)echnologic

• Internet availability

In the UK, estimates that over £50 billion was made by broadcasting and telecoms networks and services in 2006 and that, on average, a person in the UK spends cumulatively more than seven hours per day browsing the internet. The number of subscribers to broadband internet connections continues to raise dramatically, with the number of subscribers per 100 people jumping from 28 in 2006 to 38 in 2007, a growth of 36.2%.

• Telecommunications infrastructure

The UK has one of the most advanced telecommunications infrastructures in the world. The UK’s domestic telephone infrastructure consists of a mix of fiber-optic systems, buried cables and microwave radio relays, while its international telephone system is based on several satellite earth stations, at least eight international switching centers and 40 coaxial submarine cables. The mobile phone market in the UK grew at a rapid pace during the years 2003 and 2004, demonstrating a growth rate of 11% and 10%, respectively. It is expected that by 2012 the mobile phone market will reach saturation point and then in a stable growth rate will approximately be 1.8%.

(L)egal Analysis

• Labor Law

According to EU labor law, the maximum length of a working week is 48 hours in seven days, with a minimum rest of 11 hours in each 24-hour period. The UK allows those who are willing to work more than 48 hours to do so, via the European Working Time Directive. Statutes such as the Employment Rights Act 1996, the Employment Act 2002 and several other legislative provisions outlaw discrimination on the grounds of race, religion, sex, sexual orientation, disability and, most recently, age. A number of key changes have been made to British labor laws since the Labour Party came to power, such as the introduction of a national minimum wage, more generous maternity and paternity benefits and stricter measures to combat discrimination.

(E)nvironmental Analysis

• Environmental regulations

Defra is the government department responsible for the regulation of the food industry in the UK and also animal welfare and environmental issues and flood defence. The responsibility of Defra is to empower people to live in our environmental means. Basically, environmental policy in the UK is based on the principles of command and control, which may give polluters a certain fixed or standard.

The UK government has played an important key role in the development of European environmental standards with all EU policy-making. In May 1999, in the promotion of sustainable development initiatives are specifically set up an EU target. Subsequently, the EU sustainable development strategy provide a management structure to ecological, economic and social development of the EU, and to help new environmental directives integrated into other policy areas.There are four main aspects of climate change as the foundation for sustainable development which are nature and biodiversity, natural resources and waste, health, and quality of life.