United Kingdom

In-depth country-focused analysis on the United Kingdom's economic, political and operational risk environment, complemented by detailed sector insight

United Kingdom

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.

Country Risk

United Kingdom Country Risk

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Core Views

  • The UK economy outperformed most major developed states in 2015, and will continue to surpass the eurozone in 2016.

  • 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.

Major Forecast Changes

  • We have pushed back our expectations for the first policy rate hike by the Bank of England to 2016.

  • We have downgraded our current account deficit (CAD) forecasts for 2015, from 3.3% of GDP previously to 4.8% in 2015.

Key Risks To Outlook

  • Downside Risks To Medium-Term...

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United Kingdom Industry Coverage (21)

Agribusiness

United Kingdom Agribusiness

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BMI View: We favour the grain, livestock and dairy industries in the UK because of good export opportunities and a strong domestic market. The UK will post strong growth in wheat production over the coming years, as we expect the grain to remain attractive in terms of prices relative to other crops. We believe that the dairy and sugar industries will increase production in the years following the ending of their respective production quotas.

Agribusiness Market Value
BMI Market Value By Commodity (2011-2019)
...

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Autos

United Kingdom Autos

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BMI holds a bullish outlook for the UK vehicle market in 2015, on the back of improving macroeconomic fundamentals and consumer sentiment, growing business spending and fixed investment, and cheap and abundant access to credit. We forecast 5.7%% growth in total vehicle sales in the UK in 2015, coming from a 5.2% increase in the passenger car segment and 9.2% rise in commercial vehicle (CV) sales.

In the passenger car segment, we forecast sales growth to slow slightly in 2015 to 5.2% as consumer spending grows but higher base effects taper sales growth as the market edges closer towards its all-time high of 2.7mn units. Cheap access to credit increasing real wages will remain the main two drivers of consumer spending on cars in 2015, while growing fixed investment and business confidence will boost demand through the company and fleet market channels. Consumers will also be more inclined to shift purchases towards...

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Commercial Banking

United Kingdom Commercial Banking

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Commercial Banking Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits ...

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Defence & Security

United Kingdom Defence & Security

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BMI expects the UK to spend up to USD75.3bn in 2015, up slightly from the estimated USD73.9bn expenditure of 2014. On average, between 2011 and 2014, the UK spent USD66.9bn annually on defence. For the duration of the forecast period, up to and including 2019, we expect the UK to spend an average of USD83.7bn on defence annually, with the budget increasing to USD92.1bn in 2019.

Our anticipated UK defence spending trends are significant as they show that the UK defence sector is once again growing after a period of contraction, in line with government initiatives to curb public spending. The London-based Royal United Services Institute (RUSI) warned in a report published in early September 2014 that the UK would miss key defence spending targets in 2015/16. In particular, the report warned that the UK could see the proportion of its GDP which it allocates to defence reducing to around 1.88% in 2015/16. Currently, only...

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Food & Drink

United Kingdom Food & Drink

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BMI View: The UK economy outperformed most major developed states in 2015 and will continue to surpass the eurozone in 2016. 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. However, we continue to warn that without a recovery in fixed investment and real wages, the current growth burst will be unsustainable. As a result, we remain cautious about growth in the food and drink industry, especially in value terms, as competition for value and consumers'...

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Freight Transport

United Kingdom Freight Transport

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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%...

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Information Technology

United Kingdom Information Technology

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BMI View: UK information technology sector growth will be driven by areas such as the app economy and cloud computing and there are promising signs for growth of emerging technologies such as data centres and Big Data that are subject to government support. However, we continue to point to significant downside as the elections in 2015 or a potential referendum on EU membership in 2017 could impact public spending. Spending is already squeezed by fiscal austerity measures, fragile business and consumer confidence and a decline in desktop and notebook shipments and the failure of high profile public IT projects in recent years has heightened public scepticism about further projects and resulted in much tighter scrutiny of spending. The result of these trends is a forecast for UK IT spending to increase 2.5%, to...

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Infrastructure

United Kingdom Infrastructure

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BMI View : Growth will be driven by the residential sector, owing to robust demand and sentiment being buoyed among developers by a Conservative victory at the May general election. Infrastructure investment will enter more sustainable growth in 2017 after years of suffering from a lack of political clarity. We maintain our forecasts for construction industry value real growth in the UK at 3.5% for 2015 and 2016.

Key Trends And Developments

  • The victory of the Conservative party at the May 2015 general election further supports our expectation...

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Insurance

United Kingdom Insurance

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BMI View: We believe the UK's economic recovery will continue in 2015 and beyond, powered by a recovery in real wages and further improvements in labour market conditions. Although real GDP growth rates will decelerate slightly over the coming quarters, the UK will likely outperform most regional peers. This will improve available funds for spending on insurance across both life and non-life lines. In particular we anticipate strong growth in health insurance.

Even if London was not home to Lloyd's of London and the International Underwriting Association, the UK would still have a huge and dynamic insurance sector. Relative to other large European markets, the UK is unusual in that the competitive landscapes of both the non-life and life segments contain large numbers of world-class indigenous companies (some of which have very large footprints outside the country) and numerous...

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Medical Devices

United Kingdom Medical Devices

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BMI Industry View: The UK medical device market continues to be one of the strongest performers in the region, with growth of around 7% per annum forecast to 2018. This growth could however be tempered slightly if the Department of Health's efficiency programme is successfully implemented, as it aims to radically change the pricing, supply chain and procurement of medical devices in the NHS with the introduction of bar-coding and a single price comparison mechanism throughout the country amongst the initiatives on the cards. The programme will start with a couple of NHS trusts and the target for complete roll out is 2017.

Headline Industry Forecasts

  • The UK has one of the largest medical device markets in the world,...

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Metals

United Kingdom Metals

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BMI View:  After a strong year for the UK steel industry in both production and consumption in 2013, we are forecasting the recovery to remain on track, albeit at a slower pace going forward. In line with its European counterparts, the UK metals industry has been rocked by low profitability that has led to capacity reductions and disinvestment. However, the worst is probably over for the UK, as slightly stronger domestic demand and recent investment from international firms such as Sahaviriya Steel Industries and Tata Steel should arrest...

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Oil & Gas

United Kingdom Oil & Gas

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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 should not kick-in before the early 2020s at the earliest. Significant fiscal incentives could be put in place following the ongoing fiscal review. The Conservative victory poses upside risk to our UK North Sea oil and gas production outlook past 2018-2019. However, further reforms and higher sustained oil prices will be necessary to realise this upside risk.

Headline Forecasts (United Kingdom...

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Petrochemicals

United Kingdom Petrochemicals

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BMI View: The election of a new Conservative administration is likely to be more sympathetic to petrochemicals industry leaders than the previous coalition government as it will not have the restraints of a junior partner, according to BMI's latest UK Petrochemicals Report. While this could entail a relaxation on carbon regulation and a more proactive approach to unconventional energy sources, the effects on the petrochemicals sector will not be felt within the five-year forecast timeframe.

With no expectation of domestically available cheaper feedstock sources, petrochemicals capacities are likely to remain constant over the forecast period. Ethylene capacity will remain at 2.52mn tonnes per annum (tpa) and propylene capacity at 1.34mn tpa with derivatives including 820,...

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Pharmaceuticals & Healthcare

United Kingdom Pharmaceuticals & Healthcare

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BMI View: The pharmaceutical and healthcare sectors in the UK are growing at a steady rate. However, in an environment that is dictated so heavily by government spending, for future business expansion potentials to be met there needs to be a focus upon evolving current healthcare services while also containing costs. On a pharmaceutical front, this evolution needs to take place through the exploration of, and investment in, novel biotherapies, as well as gaining insight into new diagnostic measures.

Headline Expenditure Projections

  • Pharmaceutical spending is set to rise from GBP25.07bn (USD41.11bn) in 2014 to GBP25.63bn (USD38.96bn) in 2015, up 2.23% in local currency terms and down 5.2% in US dollar terms.

  • ...

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Power

United Kingdom Power

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BMI View: A Conservative victory in the UK general election removes one element of political uncertainty that has stalled investment in the domestic power sector. However, investment will continue to undershoot its potential, as other significant risks remain. A perceived lighter-touch, market-based approach to the power sector and the Conservative's focus on energy security will be offset by risks such as an EU referendum and the outcome of a competition investigation into the 'Big Six' utilities.

The emergence of a clear Conservative majority following the UK general election will at least give domestic utilities some clarity over future energy policy. The Conservative Party unexpectedly won a majority of 331 seats at the election on May 7, removing the prospect of protracted uncertainty for investors during a period of coalition-building, and concerns that an...

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Real Estate

United Kingdom Real Estate

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BMI View: The UK commercial real estate will continue to outperform that of much of the Western European region over the next two years as the country's solid economy recovery continues to support demand across the three sub-sectors we monitor. However, rental rate growth is set to moderate as high supply weighs on demand.

The UK boasts an extremely developed commercial real estate sector, with a strong private sector-led economy supporting robust demand across the office, retail and industrial real estate segments. The market's trajectory has roughly followed that of the wider economy over the past few years, with the UK's recovery from the 2008/2009 financial crisis and subsequent economic downturn among the most impressive of any of the OECD region.

The office and retail real estate sub-sectors in...

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Renewables

United Kingdom Renewables

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  • BMI View: The Conservative Party majority government will infuse policy certainty into the British renewables agenda, improving market predictability and strengthening investor confidence. We believe that onshore wind will suffer from subsidy cuts and political opposition, while the growth of solar power will slow down as a result of it having to compete on an equal basis after its inclusion to the contracts for difference (CfD) scheme. On the other hand, we continue to highlight offshore wind and distributed energy solutions (DES) as renewable energy growth areas.

The UK has pledged to derive 15% of its energy from renewable sources by 2020. Meanwhile, the government has targeted a 30% renewables share for the power sector, owing to slower progress in the heat and transport sectors...

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Retail

United Kingdom Retail

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BMI View: The UK economy is on track to be one of the fastest growing developed state in 2015, and certainly the fastest growing among the G7. However, we continue to warn that without a recovery in fixed investment and real wages, the current growth burst will be unsustainable. In fact, most of the recent boom in consumer spending has been encouraged by rising property prices in London and other localised areas, which is unsustainable for retailers. As a result, we are cautious about growth in the retail sector over the longer term, especially in value terms as competition for value and consumers' more careful spending habits will limit potential for the industry in the near term.

Although the economy is growing, retail sales in the latter months 2014 were lower than their 2013 counterparts. Although this was, in part, due to the constant push of the Christmas sales further back from December, to start in...

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Telecommunications

United Kingdom Telecommunications

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BMI View : Consolidation will be the main factor in the UK market, with deals between BT and EE , and between Hutchison and O2 . The former will drive further convergence in the market, with the launch of more innovative quad-play services. The latter will bring the number of mobile operators to three, bringing fiercer competition relating to LTE development.

Key Data

  • The UK mobile declined 1.7% quarterly in Q115, as operators shed prepaid connections by focusing on postpaid and premium services leveraging their LTE networks.

  • The share of non-DSL connections (including cable and FTTx) as part of...

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Tourism

United Kingdom Tourism

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BMI View: With highly developed travel infrastructure and a diverse range of cultural and historical attractions, the UK has one of the more attractive tourism markets in the Western Europe region. Combined with strong government support and a number of sporting events raising worldwide visibility, the UK's tourism industry is set for steady growth, provided that economies in key source markets in Europe remain relatively stable.

The UK is one of the more developed tourism industries, with strong travel infrastructure, a high presence of international hotel chains and a large degree of government backing. BMI expects steady growth over the coming years, with a total rise in inbound arrivals to 35.1mn in 2019, up by 5.2% from...

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Water

United Kingdom Water

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BMI View: 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 resulted in consistent investment and an extremely high standard of service, but has also meant that tariffs have slowly crept up as profits are targeted. In Scotland and Northern Ireland the water sectors are owned and managed by the government resulting in low tariffs for the consumers but more limited investment and therefore less scope for development and improvement. Northern Ireland residents actually receive free water as the sector is completely subsidised by the government.

In England and Wales regulation of the water sector is the responsibility of...

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Latest United Kingdom Articles

Latest United Kingdom Blogs

Latest United Kingdom Podcasts

  • May 7th is set to be a tight run election and the prospects for either...

  • Having cut their teeth in Africa, China's mammoth state-backed infrast...

  • The pharmaceutical sector is experiencing a period of consolidation an...