Economic history of the United Kingdom

The economic history of the United Kingdom relates the economic development in the British state from the absorption of Wales into the Kingdom of England after 1535 to the modern United Kingdom of Great Britain and Northern Ireland of the early 21st century.

Scotland and England (including Wales, which had been treated as part of England since 1536) shared a monarch from 1603 but their economies were run separately until they were unified in the 1707 Act of Union.^[2] Ireland was incorporated in the United Kingdom economy between 1800 and 1922; from 1922 the Irish Free State (the modern Republic of Ireland) became independent and set its own economic policy.

Great Britain, and England in particular, became one of the most prosperous economic regions in the world between the late 1600s and early 1800s as a result of being the birthplace of the Industrial Revolution that began in the mid-eighteenth century.^[3] The developments brought by industrialisation resulted in Britain becoming the premier European and global economic, political, and military power for more than a century. As the first to industrialise, Britain's industrialists revolutionised areas like manufacturing, communication, and transportation through innovations such as the steam engine (for pumps, factories, railway locomotives and steamships), textile equipment, tool-making, the Telegraph, and pioneered the railway system. With these many new technologies Britain manufactured much of the equipment and products used by other nations, becoming known as the "workshop of the world". Its businessmen were leaders in international commerce and banking, trade and shipping. Its markets included both areas that were independent and those that were part of the rapidly expanding British Empire, which by the early 1900s had become the largest empire in history. After 1840, the economic policy of mercantilism was abandoned and replaced by free trade, with fewer tariffs, quotas or restrictions, first outlined by British economist Adam Smith's Wealth of Nations. Britain's globally dominant Royal Navy protected British commercial interests, shipping and international trade, while the British legal system provided a system for resolving disputes relatively inexpensively, and the City of London functioned as the economic capital and focus of the world economy.

Between 1870 and 1900, economic output per head of the United Kingdom rose by 50 per cent (from about £28 per capita to £41 in 1900: an annual average increase in real incomes of 1% p.a.), growth which was associated with a significant rise in living standards.^[4] However, and despite this significant economic growth, some economic historians have suggested that Britain experienced a relative economic decline in the last third of the nineteenth century as industrial expansion occurred in the United States and Germany. In 1870, Britain's output per head was the second highest in the world, surpassed only by Australia. In 1914, British income per capita was the world's third highest, exceeded only by New Zealand and Australia; these three countries shared a common economic, social and cultural heritage. In 1950, British output per head was still 30 per cent over that of the average of the six founder members of the EEC, but within 20 years it had been overtaken by the majority of western European economies.^[5][6]

The response of successive British governments to this problematic performance was to seek economic growth stimuli within what became the European Union; Britain entered the European Community in 1973. Thereafter the United Kingdom's relative economic performance improved substantially to the extent that, just before the Great Recession, British income per capita exceeded, albeit marginally, that of France and Germany; furthermore, there was a significant reduction in the gap in income per capita terms between the UK and USA.^[7]