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United Kingdom Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views
The UK economy is set to outperform most major developed states in 2014, and will continue to expand at a robust clip in 2015. In light of positive structural economic reforms undertaken by the government, coupled with flexible monetary and exchange rate policies, we remain bullish on the long-term economic prospects for the UK relative to the eurozone over the longer term. Despite numerous ructions between the ruling Conservatives and Liberal Democrats, we expect the coalition government to hold firm through to the next parliamentary election in 2015.

Major Forecast Changes
We have revised up our 2014 real GDP forecast to 3.1% from 2.9% previously

Table Of Contents

United Kingdom Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Major Forecast Changes.5
Key Risks To Outlook..5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Domestic Politics 8
The Union Is Saved. The Cost Is Constitutional Change.8
Far from being a vote for the status quo, the Scottish referendum result is the trigger for constitutional change across the whole of
the United Kingdom. Although this upheaval will fundamentally alter the politics of the UK, we are fairly sanguine about the impact of
devolution, and believe that it would actually kill off the Scottish independence movement for decades, if not indefinitely.
Table: Political Overview8
Long-Term Political Outlook. 11
The Road To 2015.11
Despite just two years elapsing since the last parliamentary election, the UK's main political parties are already gearing up for the
next ballot in 2015. For the ruling Conservatives the election will hinge on the state of the economy and success of its proposed fiscal
reforms. Meanwhile, for the beleaguered opposition Labour party, a credible alternative to the government's core economic strategy is
needed, in addition to reviving its image, which has been tainted by the fractious Brown-Blair era.
Chapter 2: Economic Outlook. 15
SWOT Analysis.. 15
BMI Economic Risk Index 15
Economic Activity .. 16
Fixed Investment Rebound Crucial For Sustainable Recovery16
The UK economy will be one of the fastest growing developed states in 2014, but we warn that sustaining a robust rate of expansion
in the following years will depend on a turnaround in real wage growth and fixed investment spending, both of which have yet to fully
Monetary Policy 19
Tightening Monetary Policy Is Still A Risky Strategy.19
We believe that the Bank of England (BoE) will begin hiking the bank rate in the first quarter of 2015 and expect a modest pace of
monetary tightening over the medium term. However, we stress that despite the strength of headline economic data, the recovery
remains weak and fragile, with monetary tightening still a risky strategy. With the bank rate currently at 0.50%, the BoE has little room to
manoeuvre if policy tightening proves premature.
Exchange Rate .. 21
Shifting Rate Expectations Pressurising GBP21
The recent depreciation of the British pound ties in with our view that a revaluation of market interest rate expectations would let some of
the heat out of the sterling rally, which has been playing out since mid-2013. However, a still robust economic growth trajectory and the
gradual normalisation of monetary policy will supply the fundamental support needed to drive up the value of the pound over a multiyear
TABLE: BMI Curency Forecast .21
Banking Sector . 22
Growth Trajectory Diverging From Broader Economy..22
The pace of deleveraging in the UK banking sector has intensified further in recent months, despite the economy being on track to
post one of the fastest rates of growth among developed states in 2014. This has motivated a downward revision to our medium-term
growth forecasts. We also stress that while a smaller banking sector (in relative terms) has reduced the potential impact to the broader
economy from any future financial ructions, asset contraction has starved key sectors of the economy (particularly SMEs) of credit.
Chapter 3: 10-Year Forecast. 25
The UK Economy To 2023.. 25
UK Will Outperform Eurozone Over The Long Term25
Despite the current economic stagnation in the UK, we hold to a more upbeat assessment over the longer term and expect growth to
outperform the eurozone. Supportive of this view is the relatively competitive nature of the UK economy, independent monetary and
exchange rate policies as well as a major fiscal reforms. However, we warn that a number of challenges remain, such as an ageing
workforce as well as low educational and training attainment in the poorest areas.
TABLE: Long -Term Macroeconomic Forecasts 25
Chapter 4: Operational Risk. 27
Operational Risk Index. 27
Operational Risk 28
Table : Developed States - Labour Market Risk .28
Table: Developed States - Logistics Risk31
Table : Developed States - Crime And Security Risks 33
Table : Developed States - Trade And Investment Risk 36
Chapter 5: Key Sectors.. 39
Oil and Gas 39
TABLE: Oil Production40
TABLE: Oil Production40
TABLE: Gas Production.42
TABLE: Gas Production.42
Infrastructure.. 43
TABLE: Construction and Infrastructure Industry Data..44
Other Key Sectors 47
Table : Pharma Sector Key Indicators .47
Table: Autos Sector Key Indicators.47
Table: Food and Drink Sector Key Indicators.47
Table: Defence and Security Sector Key Indicators..48
Table : Telecoms Sector Key Indicators 48
Table : Freight Key Indicators ..48
Chapter 6: BMI Global Assumptions.. 49
Global Outlook 49
Big Emerging Market Revisions.49
Table : Global Assumptions .49
Table : Developed States , Real GDP Growt H, %..50
Table : Emerging Markets , Real GDP Growth , %.51

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