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

  • We have downgraded our current account...

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United Kingdom Industry Coverage (20)

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 moderately 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 their respective production quota ends.

Key Forecasts

  • Wheat production growth to 2017/18: 19.5% to 15.9mn tonnes. We expect UK wheat production to grow at a moderate pace due in part to wheat price outperformance relative to other grains, and ongoing demand from export destinations. However,...

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Autos

United Kingdom Autos

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BMI holds a bullish outlook for the UK passenger car market going into 2015, on the back of improving consumer sentiment and pent-up demand in the market from a period of sustained declines. We forecast 5.6% growth in vehicle sales off the back of increases of 5.2% and 8.3% in the passenger car and commercial vehicle segments, respectively.

In the first 11 months of 2014, passenger car sales increased 9.4% on the back of improvements in private consumption, cheaper access to credit and pent-up demand. In 2015, we forecast sales growth to reach 5.2% as consumer confidence continues to build but higher base effects taper sales growth somewhat. Furthermore, our country risk team continues to highlight that business confidence and fixed investment remain somewhat fickle but a modest resurgence in these indicators could help boost sales from companies and fleet purchases. This provides upside risk to our bullish forecast....

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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 is on track to be one of the fastest growing developed states in 2014, and certainly the fastest growing among the G7. Given the strength of the first and second quarter GDP readings, along with evidence from higher frequency data which suggest no let up in the rate of economic expansion, we have nudged up our full-year 2014 real GDP growth forecast to 3.1% from 2.9% previously. 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 food and drink area, especially in value terms as competition for value and consumer's more careful spending habits will limit potential for...

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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 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 4.6%, to GBP60.5bn in 2015...

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Infrastructure

United Kingdom Infrastructure

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BMI View : We are maintaining our forecasts for construction industry value real growth in the UK at 3.5% for 2015, cementing the UK as one of the fastest growing developed markets for infrastructure and construction in Europe. The UK has one of the strongest infrastructure project pipelines in Western Europe, although we note that...

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Insurance

United Kingdom Insurance

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BMI View: We expect that premiums will rise slowly and steadily in both major segments of the UK's massive and highly sophisticated insurance segment. In the life segment, the changes that were announced by the government in the March 2014 Budget are a game changer. Total premiums will be boosted as leading life insurers take advantage of the multiple strengths to promote products and solutions other than annuities. We would stress, though, that sales of annuities will not fall to zero. In the non-life segment, the continuing growth of the UK and global economies, along with product innovation, mean that premiums should rise. We think that prices in the motor vehicle insurance sub-sector are near a floor. Indeed, in the latest results (for H114 and the first nine months of the year) it is easy to find examples of major non-life companies that have lifted prices for motor insurance.

Even if...

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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.

...

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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...

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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 2016/2017 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...

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Petrochemicals

United Kingdom Petrochemicals

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British rubber and plastic production saw a growth surge in 2014 and with the domestic market likely to be buoyant in 2015 it is likely to hold up in the months ahead. However, BMI warns that the eurozone's woes are not yet over and combined with ongoing austerity measures will pose a significant risk to the petrochemicals outlook.

BMI estimates that chemicals output grew 3.8% y-o-y in 2014, while rubber and plastic production rose 11.9% as rapid growth in production was underway. The rebound came after petrochemicals underperformed compared to the rest of the industrial sector. Key end-use markets such as the construction and automotive sectors experienced strong growth in line with the overall economic recovery.

The positive performance was achieved in spite of some capacity cutbacks, including the closure of a 320,000tpa cracker and associated butadiene unit in...

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Pharmaceuticals & Healthcare

United Kingdom Pharmaceuticals & Healthcare

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BMI View: The pharmaceutical and healthcare markets of the United Kingdom are driven by government spending in the form of the National Health System (NHS), which accounts for over 80% of total healthcare spending. With a higher prevalence of non-communicable diseases, coupled with an ageing population, the increased demand for healthcare may lead to the enforcement of cost-containment strategies and movement away from expensive treatment options.

Headline Expenditure Projections

Pharmaceuticals: GBP24.53bn (USD38.01bn) in 2013 to GBP24.63bn (USD40.89bn) in 2014; +0.44% in local currency terms and +7.6% in US dollar terms.

Healthcare:...

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Power

United Kingdom Power

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BMI View:   The biggest risk to the UK power sector is the failure to mobilise investment into new capacity because of opaque and highly politicised energy policy. While the UK's Energy Bill and the EMR have been signed into law, and plans to establish a capacity mechanism are advancing, fears of a capacity crunch in the winter of 2014/2015 have resurfaced - highlighting the fragility of the UK's supply-demand balance and the need to stimulate investment in the power sector.

A failure to mobilise investment in new power generation capacity will remain the biggest threat to the UK...

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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 confusion surrounding the UK's renewables energy agenda is likely to have a detrimental impact on investment levels into the sector. That said, compared to other well developed renewable energy markets in Europe, the UK still presents investment opportunities for developers. We highlight the expanding offshore wind segment and distributed energy solutions (DES) as two such growth areas. The UK has pledged to derive 15% of its energy from renewable sources by 2020; with a government target for the power sector of 30% renewables share, owing to slower progress in the heat and transport sectors. However, the post-2020 agenda is looking less clear after the European Commission (EC) announcement of proposed EU 2030 climate and energy targets in late January 2014. It seems the EC has not set a binding renewable energy target on...

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Telecommunications

United Kingdom Telecommunications

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BMI View : Although the UK mobile market lags behind some of its regional peers in terms of mobile penetration, BMI does not believe there's much scope for further growth. The maturity the UK market has diminished opportunities for organic subscription growth, and operator strategies reflect this by increasingly focusing on value generation from high value postpaid subscriptions focussing on LTE, as well as VAS such as mobile advertising and payments. Meanwhile, in the fixed broadband sector, operators continue to target the converged services market through the provision of triple- and quad-play packages.

Key Data

  • Based on operator data, the UK...

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Tourism

United Kingdom Tourism

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BMI View: The UK tourism industry is set for a period of steady growth, with both inbound and outbound travel forecast to expand over the next five years due to favourable domestic economic circumstances. This expansion in travel will fuel growth in tourism-related receipts and industry value, though we do not expect to see a spate of hotel building in this already crowded marketplace. The UK will continue to build on its reputation as a global travel destination over the next four years with a series of infrastructure investments in air and rail travel such as expansions to Luton, Manchester and Birmingham airports as well as long-term rail projects including the HS2 high speed rail line between London and Birmingham.

We have reduced our expectations for growth in arrivals to the UK in light of flatter than expected economic growth in the eurozone, especially in many of the UK's key source...

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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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