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 Act of Union 1707.Clive Lee, Scotland and the United Kingdom: The Economy and the Union in the Twentieth Century(1996) Ireland was incorporated in the United Kingdom of Great Britain and Ireland 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. 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.Charles H. Feinstein (1972) National Income, Expenditure and Output of the United Kingdom. 1855–1955. Studies in the National Income and Expenditure of the United Kingdom, 6. Cambridge University Press; Table 1: Factor incomes in the grow national product, 1855–1965; Table 55: Mid-year home population of Great Britain and Ireland, 1855–1965; Table 61: Price indices for main categories of goods and services Factor incomes in the grow national product, 1855–1965. pp. T.4–5, T.120–121, T.132. 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.Lee, Clive. The British economy since 1700: a macroeconomic perspective (1986)

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.

16th–17th centuries

During the 16th and 17th century many fundamental economic changes occurred, these resulted in rising incomes and paved the way to the industrialisation. After 1600, the North Sea Region took over the role of the leading economic centre of Europe from the Mediterranean, which prior to this date, particularly in northern Italy, had been the most highly developed part of Europe. Great Britain, together with the Low Countries, profited more in the long run from the expansion of trade in the Atlantic and Asia than the pioneers of this trade, Spain and Portugal, fundamentally because of the success of the mainly privately owned enterprises in these two Northern countries in contrast to the arguably less successful state-owned economic systems in Iberia.

After the Black Death in the mid 14th century, and the agricultural depression of the late 15th century, the population began to increase. The export of woollen products resulted in an economic upturn with products exported to mainland Europe. Henry VII negotiated the favourable Intercursus Magnus treaty in 1496.David M. Palliser, The Age of Elizabeth: England under the later Tudors, 1547–1603 p. 300.

The high wages and abundance of available land seen in the late 15th century and early 16th century were temporary. When the population recovered, low wages and a land shortage returned. Historians in the early 20th century characterised the economic in terms of general decline, manorial reorganisation, and agricultural contraction. Later historians dropped those themes and stressed the transitions between medieval forms and Tudor progress.Michael Postan, "Revisions in Economic History. IX.—The Fifteenth Century." Economic History Review (1939) 9#2: 160–167. in JSTOR

John Leland left rich descriptions of the local economies he witnessed during his travels from 1531 to 1560. He described markets, ports, industries, buildings and transport links. He showed some small towns were expanding, through new commercial and industrial opportunities, especially cloth manufacture. He found other towns in decline, and suggested that investment by entrepreneurs and benefactors had enabled some small towns to prosper.John S. Lee, "The functions and fortunes of English small towns at the close of the middle ages: evidence from John Leland's Itinerary." Urban History 37#1 (2010): 3–25. Taxation was a negative factor in economic growth, since it was imposed, not on consumption, but on capital investments.Richard W. Hoyle, "Taxation and the mid-Tudor crisis." Economic History Review 51#4 (1998): 649–975. in JSTOR

According to Derek Hirst, outside of politics and religion, the 1640s and 1650s saw a revived economy characterised by growth in manufacturing, the elaboration of financial and credit instruments, and the commercialisation of communication. The gentry found time for leisure activities, such as horse racing and bowling. In the high culture important innovations included the development of a mass market for music, increased scientific research, and an expansion of publishing. All the trends were discussed in depth at the newly established coffee houses.Derek Hirst, "Locating the 1650s in England's seventeenth century" History 81#263 (1996): 359–83. online

Credit and money supply

The economy grew faster than the money supply in this period. Few coins were in circulation due to the scarcity of precious metals and instead most transactions were made on credit. The numerous debts were usually settled during reckonings held at convenient intervals. Reciprocal debts were cancelled and only the difference had to be paid with cash. Other than that coins were used for specific purposes such as small transactions between strangers, for paying taxes and for overseas trade. Overall coins formed less than 10% of all exchanges.

Spanish and Portuguese colonies in the New World exported large quantities of silver and gold to Europe, some of which added to the English money supply. There were multiple results that all expanded the English economy, according to Dr. Nuno Palma of the University of Manchester. The key features of the growth pattern included specialisation and structural change, and increases in market participation. The new supply of specie (silver and gold) increased the money supply. Instead of promissory notes paid off by future promissory notes, business transactions were supported by specie. This reduced transaction costs, increased the coverage of the market, and opened incentives and opportunities to participate in cash transaction. Demand arose for luxury goods from Asia, such as silk and pepper, which created new markets. The increased supply of specie made tax collection easier, allowing the government to build up fiscal capacity and provide for public goods.N. Palma, "Money and modernization in early modern England" Financial History Review (2019), preprint EHES Working Paper No. 147, February 2019, online

Various inflationary pressures existed; some were due to an influx of New World gold and a rising population. Inflation had a negative effect on the real wealth of most families.J. R. Wordie, "Deflationary factors in the Tudor price rise." Past & Present 154 (1997): 32–70. It set the stage for social upheaval as the gap between the rich and poor widening. This was a period of significant change for the majority of the rural population, with manorial land owners introducing enclosure measures.Ian Dawson, The Tudor century (1993) p. 214

Exports

Exports increased significantly, especially within the British empire. Mostly privately owned companies traded with the colonies in the West Indies, Northern America and India.

The Company of Merchant Adventurers of London brought together London's leading overseas merchants in a regulated company in the early 15th century, in the nature of a guild. Its members' main business was the export of cloth, especially white (undyed) woollen broadcloth. This enabled them to import a large range of foreign goods.Robert Brenner, Merchants and revolution: commercial change, political conflict, and London's overseas traders, 1550–1653 (Verso, 2003).E. Lipson, The Economic History of England 2 (1956): 196–268. Given the trade conditions of the time, England came up with a public policy to increase Armenian merchants' involvement in English trade to pursue its commercial interests. Accordingly, in 1688 a trade agreement was signed in London between English East India Company and Kjoja Panos Kalantar. Armenian merchants received privileges to carry out commercial activities in England. England, in its turn, wanted to change the main trade route from Europe to Asia, and from now on, Armenians, instead of overlanding in Arabia or Persia, used England. With this agreement, England wanted to take over the control that Dutch and France had at that time on world exports.

Wool industry