Development of modern civilization is marked by the tendency to multiculturalism coexistence of different nations, ethnic groups and cultures. Whereas international integration is high on the agenda, the world witnesses the necessity to preserve national and cultural diversity, authenticity of national and ethnic groups. The study raises a problem of ethnic identity in multicultural British society. The article aims to reveal the impact of ethnic stereotypes, national tolerance and xenophobia on intercultural interaction of the British with foreigners and ethnic minorities. Ethnic stereotypes are based on prejudiced biased perception of foreigners, which is caused by the realisation of cognitive opposition ‘we – others’. In everyday individual consciousness there is a strong tendency to associate ‘ourselves’ with the neutral norm or evaluate ‘ourselves positively’. The ‘others’ as representatives of different ethnic groups, however, are perceived in a negative way. Subsequently, xenophobia and prejudice lead to usage of unofficial ethnic names, offensive ethnophobisms and derogatory ethnic nicknames. Unofficial ethnic names are considered insulting and therefore unacceptable in intercultural communication. Thus, to follow the principle of ‘political correctness’ and national tolerance it is necessary to avoid using offensive, invective terms concerning foreigners or members of ethnic minorities. Names denoting ethnic groups in present-day English may be classified by the type of designation – internal and external ethnic names, and the sphere of usage – official and unofficial ethnic names, ethnophobisms and ethnic nicknames.