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
Real GDP growth in the UK economy has outperformed most major developed states in recent years, and after a slowdown in 2016 in part driven by 'Brexit' uncertainty, will continue to surpass the eurozone over the medium term.
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 over the longer term.
Major Forecast Changes.
We have revised down our real GDP growth forecast in 2016 to 1.8%, from 2.5% previously, on the back of weaker global growth and drag on confidence from the UK's upcoming referendum on EU membership.
United Kingdom Industry Coverage (30)
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 is a large and lucrative consumer electronics market with high per capita device spending supported by the affluence of the local population and a strong demand for the latest products. The growth outlook is, however, subdued due to the maturity of the market, meaning vendors are to a great extent reliant on replacement sales over the medium term. Rising disposable incomes and population growth will provide some growth momentum. However, the primary upside to our low-growth outlook is in device innovation, most notably wearables, though the first generation failed to gain mass market traction. We forecast total consumer electronics device spending in the UK to increase at a CAGR of 0.7% 2016-2020 to reach a total of USD50.72bn in 2020.
Latest Updates & Industry Developments
Defence & Security
United Kingdom Defence & Security
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...
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: Our outlook for the UK's insurance market is broadly positive at present. In the larger life insurance sector, improving household income rates and strong demographic trends will support a solid uptick in premium growth between 2016 and 2020, leading to life insurance accounting for over 75% of all insurance premiums written by the end of the forecast period. Growth will be more subdued in the non-life sector, partly a result of intense pricing pressure in highly competitive lines such as motor and property insurance, and also reflecting the overall maturity of this well-established market. Health and personal accident insurance will likely remain the strongest non-life growth sectors, outpacing the remainder of the non-life market.
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)||...|
United Kingdom Metals
BMI View: We have increased our 2016 tin price forecast to USD16,500/tonne owing to a stabilisation in the Chinese economy over Q116 that has boosted all industrial metal prices significantly over January-April. While we expect consolidation over the remainder of 2016, tin prices will continue to recover beyond 2016 as the global market posts sustained market deficits and inventories dwindle.
United Kingdom Metals
BMI view: We have revised our aluminium price forecast from USD1,575/tonne to USD1,600/tonne in 2016, as the tightening market provided an earlier than expected floor in Q116. Aluminium prices will gradually edge higher as the global market moves into a deficit by 2018.
United Kingdom Metals
BMI View: Despite the strong H116 iron ore price rally, prices will edge lower due to weakening Chinese consumption over the latter half of 2016. From 2017 onwards, iron ore prices will remain subdued as iron ore prices remain under pressure from an over-supplied seaborne market, driven by strong production growth in Australia and Brazil, and weak consumption growth in China.
United Kingdom Metals
BMI View: Nickel prices will bottom in 2016 as weak production drags the global market into deficit. For instance, we expect Chinese imports of nickel to grow over the coming quarters. Prices will begin 2016 weaker than we had previously expected and we have thus revised down our 2016 average price forecast to USD9,000/tonne from USD10,500/tonne.
United Kingdom Metals
BMI View: We have revised down our average copper price forecast for 2016 to USD4,900/tonne. We expect prices to find a floor over the first half of 2016, and begin to stabilise thereafter, supported by production cuts and modest consumption growth.
United Kingdom Metals
BMI View: We have raised our gold price forecast for 2016 to USD1,275/oz and have a new five-year price target of USD1,400/oz. We have turned more positive towards prices due to rising inflation pressures and our view that real rates will remain depressed in developed markets beyond 2016. A modest rise in prices will be insufficient to reverse the trend of weak mine investment and industry consolidation.
United Kingdom Metals
BMI View: Global steel prices will remain subdued due to a persistent steel oversupply over the coming quarters. From 2017 onwards, steel prices will gradually edge higher as the global steel surplus will narrow due to Chinese supply moderation.
United Kingdom Metals
BMI View: We maintain our average zinc price forecast for 2016 of USD1,750/tonne. We expect zinc prices to reach a floor over the first half of 2016, and begin to stabilise thereafter, as production cuts shift the market to a deficit.
United Kingdom Metals
BMI View: Lead prices will gradually edge higher as the global lead market will shift into deficit by 2017 as production growth will slow over the coming years.
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
Above-trend petrochemicals consumption at a time when plastic and rubber output is sluggish should boost UK imports. The competitiveness of British petrochemicals production has been undermined by the lack of locally available and competitively priced feedstock as well as the strength of the pound against the euro. As such, British producers are in a weaker position to compete with foreign output.
British chemicals output grew 5.0% with petrochemicals up 6.7%. However, the manufacturing of rubber and plastic products fell 3.4%, reversing the gains made in 2014. The latest survey of business confidence for members of the Chemical Industries Association (CIA) shows that more than 90% of businesses expect sales volumes to remain or exceed 2015 levels when there was a record 5% growth. More than 40% expect sales volumes to grow in 2016. This lends support to continued domestic petrochemicals growth.
The main downside risk...
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 outlook for the UK economy over 2016 remains stronger than for the rest of the eurozone. Lower oil prices continue to drive consumer spending. However, there are two developments which are likely to substantially affect the retail sector over the year. Firstly, the National Living Wage has very recently been introduced, which means that retailers are faced with increased costs which could result in further store closures across the country. Secondly, the outcome of the forthcoming EU referendum in June remains uncertain. 'Brexit' could result in a downturn in consumer confidence and spending patterns, whilst sourcing strategies and other supplier relationships would...
United Kingdom Telecommunications
BMI View: The acquisition of EE by BT creates a clear market leader in the UK telecoms market, offering both fixed and mobile services. This will accelerate the development of convergence in the country, which has lagged behind its European counterparts. Competition would be boosted by the creation of stronger alternative players, but the deal between 3 and O2 is hitting strong regulatory scrutiny. Furthermore, BT is also under pressure over the future of Openreach, and whether it is the right mechanism to drive advanced broadband investments.
|Openreach A Big Part Of BT|
|BT's Revenues & EBITDA (GBPbn), Q415|
United Kingdom Tourism
BMI View: The UK has a large and mature tourism market and attracts high numbers of inbound arrivals from a range of source markets, as well as a great deal of investment. Growth is expected to be low and stable over the next five years, with 2016 slightly better than the low growth in 2015. Infrastructure is continuing to be invested in, although the failure to commit to airport expansion is suppressing the industry's potential. Additionally, the potential exit of Britain from the European Union in mid-2016 creates uncertainty for inbound investment and the threat of terrorist attacks throughout Europe could damage short-term inbound arrivals.
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...