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 and 2017

  • 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 4.9% in 2015 and 4.6% in 2016

Key Risks To Outlook

  • ...

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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 sales in the UK vehicle market in 2015, on the back of improving macroeconomic fundamentals and consumer sentiment, cheap and abundant access to credit, and pent-up demand in the market from a period of sustained declines. We forecast 6.3% growth in total vehicle sales in the UK in 2015, coming from a 5.2% increase in the passenger car segment and 13.9% 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 and increasing real wages and employment will remain the main 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...

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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 has 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, the UK's economic recovery is still overly dependent on household consumption, and we forecast a slight deceleration in 2015 and 2016 to 2.4% of GDP, as the bulk of GDP gains from the labour market recovery are now behind us. 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...

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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. The electoral win of the Conservative Party will ensure government's continuity when it comes to policy and outlook for the sector. However, downside could come from potential spending cuts. Spending is already squeezed by fiscal austerity measures, fragile business and consumer confidence and a decline in desktop and notebook shipments. 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...

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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 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. The Department of Health's efficiency programme 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.

...

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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: Although the UK is witnessing a solid economic recovery, the country's plastic and rubber production stagnated in H115 even as overall chemicals production rose 5%. The British chemicals industry as a whole is in transition to higher-value, lower-volume production, having closed many basic chemicals and polymers capacities in recent years. This should put the industry in good stead for profitability, although existing petrochemicals facilities will continue to feel the challenge of feedstock prices in competing with US and Middle Eastern rivals.

The latest production indices suggest that British chemicals grew by an average of 5% y-o-y in H115 while rubber and plastic output stagnated. The trends show that the petrochemicals portion of overall chemicals output has...

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Pharmaceuticals & Healthcare

United Kingdom Pharmaceuticals & Healthcare

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BMI View: As a global major powerhouse in R&D and manufacturing of medicines and biotechnology, the UK will continue to present room for strong sector development, which will be further supported by the last financial year increase of foreign direct investment in the UK as well as a sustained economic growth trajectory. This is illustrated by an uptick in multinational funding and venture capital deals in the biotech industry, such as Inmunocore's latest successful private financing round, investments in the life sciences sector by Takeda, Pfizer and Cipla as well as other developments. However, the expanding and ageing population in the...

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Power

United Kingdom Power

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BMI View: Our view that the UK's Conservative government will focus on energy security and affordability at the expense of renewable energy policies is firmly in play. Energy security and the construction of new gas power plants could be boosted by the implementation of a capacity mechanism and falling gas prices, while efforts to improve transparency in the utilities sector could create greater competition and a better deal for consumers.

Many of the views we outlined ahead of the UK's May 2015 general election are firmly in play - with a clear Conservative majority at least giving investors and utilities some clarity over future energy policy. With regards to our key views, we maintain that Prime Minister David Cameron and his Conservative government will struggle to balance concerns about energy security, affordability and green energy policies - the so-called 'energy...

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Real Estate

United Kingdom Real Estate

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BMI View : Low commodity prices and inflation CPI of 0.0% in Q215 should sustain the robust economy in the UK over the remainder of 2015 and into 2016. The tertiary sector remains the strongest contributor, at 78% of GDP, a factor we expect to remain resilient, despite current external market volatility, as consumer spending and domestic demand drive retail and office opportunities over the forecast period.

Domestic demand is expected to remain strong: higher wages coupled with the temporary effects of low inflation have influenced consumer confidence in the short term, and should see sustained levels in the forecast period. We can attribute long-term economic stability to the rise of oil and energy production, which have raised the GDP 0.7% Q215 to a figure of 2.7% y-o-y, after a brief slowdown in Q115...

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Renewables

United Kingdom Renewables

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BMI View: Cuts across the board for the renewables sector under the new Conservative majority administration will mute sector growth, as investor interest cools down in line with falling government support. The broad and extensive cuts - intended to rein in costs in the sector - will limit opportunities in onshore wind power, small-scale and large scale solar power, biomass power, energy efficiency measure deployment and distributed energy solutions, and as such, we have revised down our non-hydropower growth rates significantly over our 10-year forecast. We expect offshore wind to remain the outperformer in the market, as the one broadly deployed technology left unscathed by austerity measures...

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Retail

United Kingdom Retail

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B MI View: The short term outlook for the economy is healthy, with the UK being one of the fastest growing economies in the G7, which in turn is forecast to increase the level of household spending, representing an opportunity for retailers.

The overall growth in the UK economy is healthy and relatively strong compared to some of the other developed countries, as overall global economic growth remains sluggish as the recovery from the global recession continues. The expected 2.7% growth rate for the year 2014 in GDP makes the UK one of the fastest growing G7 nations. The knock on effect for retailers is that household expenditure is also set to grow, from USD1,683bn in 2015 to USD2,247bn by 2019.Unfortunately for retailers, housing and utilities will take up most of this expenditure due to the high levels of property prices in the UK, especially in London.

...

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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 Western Europe. When combined with strong government support and a number of sporting events that have raised 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...

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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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