With a flexible exchange rate, access to the European single market and an increasingly competitive corporate tax rate, the United Kingdom attracts a number of our clients. The country has one of the world's oldest and most entrenched parliamentary democracies, as well as strong institutional quality, and the protection of property rights, which remain highly appealing to foreign investors.
We ensure our clients make sound business decisions in the United Kingdom, using our risk-assessed total analysis model. Our research teams keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Our expert views are supported by our interactive data and forecasting. We also provide in-depth analysis on 20 of the country’s most important industries. Our analysts will keep you ahead of the curve in the United Kingdom.
United Kingdom Country Risk
Brexit will weigh heavily on UK growth, predominantly in H216 and H117 when uncertainty over the UK's future relationship with the EU is at its highest. We have revised down our real GDP growth forecasts for 2016 and 2017 to 1.4% and 0.2% respectively, from 1.8% and 2.2% previously.
The Bank of England (BoE) will ease monetary policy in light of the British vote to leave the EU on June 23, with an interest rate cut and resumption of quantitative now expected in H216. However, with interest rates already at record lows and inflation poised to rise on the back of pound depreciation, monetary stimulus will have little beneficial impact on the real economy.
While there remains considerable uncertainty as to the makeup and policy direction of the next UK government, we expect a relaxation of deficit reduction targets in light...
United Kingdom Industry Coverage (21)
United Kingdom Agribusiness
BMI View: To 2019, the UK will see steady production growth in barley, poultry and cheese. There will be strong export opportunities for grains and sugar to the Middle East and North Africa. In particular, the UK will be a leading sugar exporter among EU countries after the industry consolidates following the removal of production quotas in 2017.
|Agribusiness Market Value|
|BMI Market Value By Commodity (2011-2019)|
United Kingdom Autos
BMI View: The UK's passenger car market has become overheated and will shift into a period of anaemic growth over the remainder of our forecast period to 2019.
|Passenger Car and Light Commercial Vehicle Sales|
|f = BMI forecast. Source: Department For Transport, BMI|
Interest rate rises in 2016 and onwards will significantly impact consumer spending on vehicles given that UK households remain highly overleveraged and the car market...
United Kingdom Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits||...|
United Kingdom Consumer Electronics
B MI View: The UK Brexit referendum result produced a sharp depreciation of sterling against the US dollar, as a consequence of which we have downgraded the outlook for consumer electronics device sales in 2016 and over the medium term. Several vendors announced device price rises in the weeks following Brexit, and we expect more to follow in all three segments, but with the PC and AV categories forecast to be worst effected where margins are narrowest so the scope for absorbing cost increases are most limited. Over the medium term, we consider the consumer electronics market to be one of the least directly affected by political and regulatory uncertainty, but there will nonetheless be negative spill over from any impact on growth and investment that arises if UK-EU negotiations are prolonged or fractious....
Defence & Security
United Kingdom Defence & Security
BMI View: Weaker economic growth as a result of the Brexit vote in 2016-2017 will likely force the MoD to revise its plan for a 3.1% real term increase in defence spending out to 2020. Defence expenditure will still remain above the 2% of GDP NATO-stipulated target, amid rising security threats from Russian aggression, terrorism and cybercrime - allowing the Ministry of Defence to move ahead with key procurement programmes. The Brexit vote will create uncertainty in the local defence sector and could lead to reductions in FDI and R&D funding in the next few years. However, longer-term potential for industry development and export growth remains strong, amid robust government support and as local companies' technologically-advanced capabilities continue to attract investors.
Food & Drink
United Kingdom Food & Drink
BMI View: The UK's economic recovery will continue to outpace the eurozone's for the foreseeable future, and we expect real GDP to grow by 2.4% in both 2016 and 2017. Although growth has been primarily driven by household consumption, fixed investment rates should begin to pick up over the coming quarters as capacity utilisation increases. Nonetheless, several risks remain; high household debt levels and a frothy housing market render household consumption vulnerable to interest rate shocks. As a result, we remain cautious about growth in the food and drink industry, especially in value terms, as competition for value and consumers' more careful spending habits will limit potential for the industry in the near term.
Headline Industry Data...
United Kingdom Freight Transport
Economy To Lift Freight Sector In 2015
The macro-economic outlook for the UK is moderately positive for the freight transport sector in 2015. We believe cargo volume growth will range from the low single percentage digits (road freight, air freight, some ports) to slightly higher levels, although also in single digit territory. Rail and some ports (notably Southampton but also Dover and Grimsby & Immingham) will grow at faster-than-GDP rates, while road haulage, airfreight, and a number of other ports will lag behind. We also note that UK real trade is expected to grow by 1.5%, also slower than GDP. Exports will lead the way (+1.6%) with imports growing by 1.3%.
With a couple of reservations, BMI is upbeat about prospects for the UK economy. In 2015 we are expecting GDP growth of 2.5%, after a particularly strong 2014, where we recently raised out estimate to 3.1%...
United Kingdom Information Technology
BMI View: We maintain a relatively robust growth outlook for UK IT spending over the medium term in the Q116 update, with spending growth expected to outperform most other developed European markets with a CAGR of 3.4% over 2016-2019. The stronger economic environment is a key differentiator with other Western European markets, while the large financial sector will also make the UK a lucrative market for advanced software and services vendors. Market development will however be uneven, and we envisage a stagnant hardware market, while growth will be driven by areas such as the app economy, cloud computing and emerging...
United Kingdom Infrastructure
BMI View : We maintain our forecasts for construction industry value real growth in the UK at 3.5% for 2016. Residential building will drive this growth, although we do not expect that government initiatives will boost output significantly. Several major infrastructure projects are yet to be fully factored into our forecasts due to slow progress on investment decisions, but already the UK has Europe's largest infrastructure project pipeline.
We forecast that the residential building market will remain buoyant - averaging real growth of 3.2% between 2016 and 2020....
United Kingdom Insurance
BMI View: We have updated our insurance market forecasts this quarter to incorporate the anticipated impact of the UK's decision to leave the European Union (EU) following the June 2016 referendum. While regulatory changes will take some time to enact, as the UK progresses through the necessary parliamentary motions and two-year EU negotiation period, there will be a near-term impact on the market by financial market fluctuations and currency movements. We have therefore made downwards revisions to our 2016 forecasts for both the life and non-life sectors. We note, however, that the UK insurance market is large, well-capitalised and home to a number of major multinational providers with expertise in a range of sectors. It is therefore well-positioned to handle the transition period and, dependent upon the wider economic trajectory in the UK, is expected to see positive growth over the medium term.
United Kingdom Medical Devices
BMI View: The UK medical device market will continue to be one of the strongest performers in the region, with average US dollar growth of around 5% per annum forecast to 2019. The newly elected Conservative government has promised a minimum real terms increase in NHS funding in England over the next five years. Nevertheless, cost containment remains high on the agenda and efficiency measures will weigh on market growth.
|Total (USDmn)||Per Capita (USD)||...|
Oil & Gas
United Kingdom Oil & Gas
BMI View: While we see a provisional uptick in oil and gas production in the UK from 2015 onwards based on projects in the pipeline, the long-term trend remains one of stagnation given falling volumes from mature fields, a lack of significant new discoveries, falling oil prices and increasing exploration, production and operational costs in the region at a time when oil companies are seeking Capex cuts. While shale gas presents upside risk to gas production, this will not come online before the early 2020s at the earliest. Significant fiscal incentives put in place following the ongoing fiscal review provide some upside risk to our oil and gas production outlook past 2018/2019. However, further reforms and higher sustained oil prices will be necessary to realise...
United Kingdom Petrochemicals
BMI View: Brexit has cast considerable uncertainty over the British petrochemicals industry's future with the possibility of an end to European single market access and Scottish independence leading to likely capacity cuts. The sector is benefitting in the short term from a boost in external competitiveness as a result of the fall in the value of the pound. In the long term, if it can maintain tariff-free access to mainland markets and the US continues exporting ethane from its shale resources, the UK could remain stronger than EU states. However, this is based on many requisites that will have to be met if the industry is to survive and thrive.
Before the Brexit vote, the UK petrochemicals industry was witnessing a contraction...
Pharmaceuticals & Healthcare
United Kingdom Pharmaceuticals & Healthcare
BMI View : Sustained pharmaceutical and healthcare market growth in the UK will create improved opportunities for drugmakers over the next 10 years. Despite pressure on revenues due to cost containment measures, the adoption of health innovations will continue to be a competing policy priority, as illustrated by the recent creation of a market access office under the National Institute for Health and Care Excellence to facilitate the domestic diffusion of new health products, as well as the use of different financing mechanisms to ensure access to value-adding innovations. Meanwhile, the robust R&D base in the country will continue to attract investment in biotechnologies and next-generation treatments, including through increasing collaborations between...
United Kingdom Power
BMI View: Plans to phase out the UK's remaining coal-fired power capacity by 2025 cement the decline of coal, which is already occurring due to tightening EU emissions directives, the UK's carbon price floor and a sustained period of lower gas prices. The biggest challenge when removing coal from the energy mix will be mobilising investment into replacement gas capacity, which will certainly require reform of the UK's capacity mechanism.
United Kingdom Real Estate
BMI View : With economic growth broadening out to the UK regions, we expect rental rates to grow across all three commercial real estate market sub-sectors we cover in 2016. Investors' desire to capture growth and secure higher returns should keep demand for property in which to invest high. There are still opportunities to take on development risk in the regions and suburban London.
UK economic growth slowed slightly in Q315, expanding by 0.5%, down from 0.7% in Q215. A contraction in manufacturing and construction output was the main factor in this slower growth. Meanwhile, the services sector has continued to be the key driver of economic expansion. Business confidence has increased following the decisive outcome in the May 2015 general election, ending months of uncertainty. Consumer confidence is also improving, and with unemployment continuing to trend down...
United Kingdom Renewables
BMI View: We expect growth in the British non-hydropower renewables segment to slow down over our 10-year forecast period, as widespread subsidy cuts and heightened policy uncertainty will lower the attractiveness of the market. The austere energy policy that is being rolled out by the new Conservative majority government will therefore lead to a tougher environment for renewable energy in the UK over the next five years, and as DECC states that the spending under the LCF is already over budget for the next five years, we see little room for deviation from austerity policy.
United Kingdom Retail
BMI View: The landmark referendum decision to exit the EU has led to a re-assessment of our household spending forecasts over the next five years. We have downgraded our forecasts for the 2016-2020 period and now expect growth in household spending in sterling terms of 1.4% in 2016, down from 3.1% under our old forecast. The uncertain economic outlook, labour market risk and declining consumer confidence will all weigh on our household spending forecast for 2016 and beyond. Additionally, retailers will see their costs rise as a result of currency weakness and the implementation of the National Living Wage. The UK market is still attractive given its high level of development, but we expect...
United Kingdom Telecommunications
BMI View: As the European telecoms sector is closely modelled on the UK regime, we anticipate little impact on the domestic market for retail and wholesale voice, data, broadband and pay-TV services to arise from the country's potential withdrawal from the European Union. A post-'Brexit' competitive landscape would be little changed as the major players are already UK-focused while the regulator's long-term view of market development does not differ from the views of the European Commission. That said, the greatest impact is likely to come at the regulatory level, as future UK governments are expected to take a more nuanced approach to overseeing issues such as data sovereignty, net neutrality and consumer privacy. The downside is that lower targets could be set by the government with respect to...
United Kingdom Tourism
BMI View: Tourism is a very well-established industry in the UK, accounting for more than 3mn jobs, and the sector is a substantial contributor to the domestic economy. The UK's inbound tourism market is among the top 10 largest globally and is supported by a significant domestic tourism industry. While the UK's decision to exit the EU in the June referendum certainly has implications for the tourism sector, the maturity of the industry...
United Kingdom Water
BMI View: The UK water sector will go from strength to strength over the coming years as modernisations and expansion continue to improve an already robust and efficient industry. Slight problems with pollution and water losses are in the process of being rectified, and the expansion of the network and the growing demand for water have led to our forecast rise in extraction and consumption levels. We see significant opportunities for both services and infrastructure groups.
The four nations of the UK have top of the range water sectors. Infrastructure and technology are among the best in Europe and those responsible for the sectors appear keen to maintain the high standards and develop the sectors for the future. In England and Wales this task falls to private companies, with both sectors being fully privatised. This has...