The Economy of The United Kingdom

[Music] this is England Northern Ireland Scotland and Wales collectively making up the United Kingdom a country of countries but different from the country of countries that was the British Empire which has now evolved into the Commonwealth of Nations confused good because the economy of the United Kingdom gets even better from here for the sake of this video we will mostly be looking at the economy of the United Kingdom as a collective glob which is this - this but it is important to remember all of these because they will be important later the economy of the United Kingdom is really a Tale of Two Cities it was the best of times and it was the worst of times it is an economy with the highest levels of foreign investment per capita in the world and it is an economy they major poverty crisis it is an economy that is home to the second largest financial center in the world and yet its entire economy is smaller than that of California it's this one that I really want to focus on though the United Kingdom is a country heavily dependent on its financial services industry to a level that brings it in line with nations like Singapore and Hong Kong which in and of themselves are basically just giant cities full of banks London and New York trade back and forth for the title of the world's largest financial center as of recording this video New York holds a slim lead over London but depending on when you actually watch it it is possible that this league could have changed hands all over again this for the most part sounds brilliant a strong financial services sector is hugely beneficial to a national economy it creates thousands of extremely high paying jobs and contract profits from all over the world to be introduced to the local economy and the United Kingdom is a great example of this London is home to the offices of over 500 banks from small banks with local operations in the area two major international banks like HSBC which stands for the Hong Kong Shanghai Banking Corporation but has its global headquarters in London Yatta no but there has got to be something more going on here thanks we'll set up shop wherever there is money to be made and on the surface London doesn't actually seem that lucrative the New York Stock Exchange located in lower Manhattan is by far the largest securities exchange in the world it is an open market to buy and sell the shares of some of the largest corporations in the world it has a monthly trading volume of over 1.4 five trillion US dollars conveniently New York is also home to the Nasdaq the world's second largest securities exchange which trades around 1.25 trillion US dollars per month these two exchanges alone are collectively worth over two and a half trillion dollars in trading volume in a single month in one city the London Stock Exchange for comparison is pretty unremarkable with monthly trading volumes of around 220 billion u.s. dollars what is more is that Microsoft Apple alphabet and Amazon just four companies listed on these American exchanges have a larger market capitalization position than the entire London Stock Exchange so how does this make sense the banking industry in New York is attracted to these huge securities and trading markets of the New York Stock Exchange and the Nasdaq as they are huge markets for everything from pension funds to high-frequency trading firms to invest in and try and generate returns from this in turn creates a financial ecosystem for runoff markets like accounting and legal firms to service this trading and suddenly the financial monolith of New York starts to make sense but London for comparison is home to a market 1/10 the size of New York's and yet London is still a financial center that goes toe to toe with Manhattan the secret here is that London is pretty unconcerned in general with IPOs stock buybacks hedge funds and wild speculation they prefer a selection of more elegant financial services for a more civilized age they are happy to leave the stock speculation business to the riffraff over in the colonies the real secret to success of London as a financial center is in the services it provides and not in the markets it accommodates London is a major Centre for the trading of foreign exchange derivatives euro zone bonds and it is home to a disproportionate amount of family offices a family office is effectively an investment bank with one client either an extremely wealthy family or an individual it is normally assumed that Bill Gates the wealthiest man in the world sukkah Geoff has most of his wealth coming from Microsoft shares the reality is today Microsoft doesn't even make up a quarter of his portfolio he is invested in a why variety of businesses through his family office which is rumored to be a secretive organization operating in undisclosed building in Manhattan gates reportedly employs a team of around 40 people to manage his investments and if you ever managed to call through to the fund they will ask how you got the number hang up on you and then change the phone line this is all conjecture which I can neither confirm nor deny but family officers are surprisingly big businesses the world over and London is the epicenter of these offices extremely wealthy old male elite from across the world want a few things from their family offices stability above all else there should be no eventualities where money will ever run out god forbid the beneficiaries of these funds should ever have to work you will also want to see a return on these investments it is no good having all this money if it won't make more money you have caviar and champagne to buy you also want to avoid some taxes if at all possible the money is for you you want to keep every last cent London kind of ticks all of these boxes sure you could probably get better returns in New York with their fast-paced high-volume security markets but we are talking about old money for some of these family offices like so old money that they were established before Wall Street was established sure the Americans can have their fun but for a true intergenerational family office you would only trust a financial city with over 500 years of history or greater it is something I repeat over and over and over again on the channel but stability is the foundation of any kind of market or economic system perhaps just by virtue of its age and stability London is the go-to for some of Europe's elite to set up their family offices one of the other big points of note is taxation now we have explored corporate tax schemes on this channel before when we looked at the Netherlands when it comes to minimizing tax for individuals the rules are a little bit looser typically when you think of tax havens you think of the Cayman Islands the British Virgin Islands Bermuda the Turks and Caicos and Montserrat and you notice something all of these places have in common yep they are all British territories a hangover from the time when England was a fan of sticking their flag on every spit of land it could Ram a square rigger into the city of London not to be confused with London he is like a city state within the greater city of London within England within the United Kingdom within the Commonwealth and this city acts as a sort of central location to conduct business with all of these British tax havens in a way that is far too complicated to get into in a single video but it is super interesting and I will leave a feature-length documentary link in the video description for people that are interested in that what it does mean is that people setting up family offices in London not only get to park their money in one of the most established and secure financial centres in the world but they also get access to a world-class tax offshoring network that they can conveniently control from the City of London this explains another anomaly with the economy of the United Kingdom it is the world's seventh largest economy by GDP but it attracts the second highest rate of foreign investment in the world only just falling behind the United States but now we know this is caused by businesses institutions and individuals trying to set up their financial future in London for all of the amazing services it offers ok so this is great the financial services sector of the United Kingdom is obviously very important for the country the region and the world economy but there is more to the United Kingdom than just that the thing is though for the most part the economy is kind of just average for a modern developed country which is not meant to be rude I mean it's just average buy a lot of metrics it is a large economy certainly but amongst the developed countries around the world it's just about average especially when you look at GDP per capita it has average wealth inequality and has had pretty average growth over previous decades this sounds like an insult but in many ways it's really a compliment the United Kingdom set out the frameworks for many modern developed nations like Australia Canada New Zealand India South Africa and even the United States although they would never admit it but these countries did adopt a lot of their fundamental economic structures from the United Kingdom they have since of course added their own flair to the British system to varying degrees of success and what this means is that these countries tend to form an average around the default system which is the United Kingdom this effect has actually been studied closely amongst ex colonies of the British Empire and if nothing else it is an interesting case study in causal statistics this kind of British unremarkable nough sizz actually quite a good thing though an economy that is content to plot along is highly desirable for a lot of businesses even outside of the financial sphere we had explored earlier the United Kingdom was the birthplace of the Industrial Revolution but today it is home to much more high-end manufacturing centers sure mass production has gone to more cost competitive markets like China and India but the United Kingdom still has a thriving industry for producing things like high-end motorcars think Bentley Range Rover Jaguar Aston Martin McLaren all products where price isn't necessarily an issue that quality is the same is true for other types of high in manufacturing Rolls Royce is normally known for their cars but their primary business is actually building jet engines which is an incredibly profitable and capital intensive industry which is taking part in the United Kingdom if you take nothing else away from this video just remember that the United Kingdom has always been a country that influences and is influenced by the world today it receives and makes investments way above its weight class on the global market it exports high-end goods and has a larger balance of trade than many countries that look larger on paper the country has realized that it is a small rock in the Atlantic Ocean the key to securing prosperity in the past present and future is to leverage its stability and be a fantastic middleman for the world's economy which has served it well and I can't envisage any reason that this system could not continue into the future to raise living standards for all the residents of the yeah this is going to need its own video but in the meantime I hope you enjoyed this one this video is made possible by all of our amazing new patrons on patreon thanks for your support guys if you have enjoyed this video please consider liking and subscribing otherwise I will be hosting a live stream of the Q&A session for this video on the second channel so feel free to head over there or hop onto our discord server if you have any questions or comments about anything described here thanks guys bye

Channel: Economics Explained

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Keywords: the economy of the united kingdom, the economics of the united kingdom, the economy of the united kingdom explained, the economics of the united kingdom explained, the united kingdom economics explained, economics explained the united kingdom, the united kingdom economy explained, the united kingdom economy, the united kingdom economy economics explained, economics, the united kingdom economics, how the united kingdom economy works, economics explained

Id: Ag5XmYWJ3mI

Length: 11min 2sec (662 seconds)

Published: Thu Dec 12 2019