Our comprehensive assessment of the United Kingdom's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect the United Kingdom, as well as the latest industry developments that could impact the United Kingdom's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in the United Kingdom before your competitors.
United Kingdom Country Risk
The UK economy is set to outperform 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 revised up our 2014 real GDP forecast to 2.9% from 2.6% previously
Key Risks To Outlook
United Kingdom Industry Coverage (20)
United Kingdom Agribusiness
BMI View: We favour the grain, livestock and dairy industries in the UK because of good export opportunities and a strong domestic market. The country became a net importer of wheat in 2012/13 and 2013/14, but this will not be the case again in 2014/15. We see limited growth for the sugar industry, as we believe that the abolishment of the EU production quota in 2017 will see companies base their operations in higher- yielding areas.
Wheat production growth to 2017/18: 19.5% to 15.9mn tonnes. We expect the UK wheat industry to face challenges in the near term owing to increased competition for exports from the Black Sea region, decreasing direct payments to farmers as a result of Common Agricultural Policy (CAP) reform, and poor...
United Kingdom Autos
In 2014, BMI forecasts 6.4% growth in total vehicle sales in the UK, coming from a 6.6% increase in the passenger car segment and 5.4% rise in commercial vehicle (CV) sales.
BMI's bullish outlook for the passenger car market in 2014 comes on the back of improving consumer sentiment and pent-up demand in the market from a period of sustained declines. In 2013, passenger car sales increased 12.6% on the back of modest improvements in private consumption, price cuts from car sellers, and pent-up demand. The majority of cars sold in the UK market in 2013 were due to private sales, rather than fleet and business consumers. We expect trend to continue into 2014 as consumer confidence gains ground, although a modest resurgence in business confidence in the country will help boost sales from companies and fleet purchases. This provides upside risk to our bullish forecast.
Defence & Security
United Kingdom Defence & Security
The United Kingdom is one of the most significant defence spenders in Europe and the wider world. BMI calculates that the country will spend US$71.4bn on defence in 2014. This is a significant increase from the US$65.9bn that the UK spent on defence in 2013. By 2018, we expect the UK to spend up to US$95.1bn on defence.
As regards procurement and defence modernisation, in February 2014 the British Army completed the preliminary design review for its Warrior infantry fighting vehicles. The British Army plans to upgrade all 643 of its vehicles with a service entry for these upgraded platforms scheduled for 2018.
As of January 2014, the RAF had received seven of its 14 A330-MRTT aircraft. A further two will be delivered in 2014, taking the total fleet size to nine. Meanwhile, it was announced in January that the RAF had taken delivery of the first of three Boeing CH-47 Chinook heavylift helicopters...
Food & Drink
United Kingdom Food & Drink
BMI View: Â Â The UK economy will set the pace for growth in Europe this year. Given the strength of recent growth numbers and the continued slew of positive macro data, we have revised up our 2014 growth forecast to 2. 9 % from 2. 6 % previously. However, we continue to warn that without a robust recovery in wages and business spending, the current rebound is at risk of losing momentum. 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 the industry in...
United Kingdom Freight Transport
The UK Recovery Is On its Way
After stagnation in 2012 and weak growth in 2013, there are signs that the UK economy may in 2014 be shaking off its torpor and beginning to stretch its legs. Since around mid-2013, BMI has been detecting a change in sentiment, reflected principally in the services purchasing mangers' index (PMI) which in August 2013 soared to 60.5, close to the previous high recorded seven years earlier. Manufacturing PMI also improved. With something of a lag, the real economy showed signs of following the sentiment. UK GDP rose by 0.8% quarter-on-quarter (q-o-q) in Q313, the fastest pace of growth in three years. The hard-hit construction sector showed signs of recovery, reflecting public investment and the residential housing Help to Buy scheme. We have some reservations about how strong this recovery will be. We want to see further confirmation that the real economy is...
United Kingdom Information Technology
BMI View: The UK government has sought in recent years to strengthen the UK's position as a hub for innovation, which has begun to yield some results in areas such as the app economy and there are promising signs for growth of Â emerging technologies such as datacentres and cloud services and Big Data that are subject to government support. However , we continue to point to significant downside, as spending is squeezed by fiscal austerity measures, fragile business and consumer confidence and a decline in desktop and notebook shipments. Furthermore, 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 3.5%, to GBP55.3bn in 2014.Â...
United Kingdom Infrastructure
BMI View : The UK remains one of the most attractive market s for Â investors . The residential sector's recovery is driving construction industry growth , and although the government has been criticised for failing to push projects through, the UK has one of the strongest infrastructure project pipelines in Europe. In light of these factors, w e maintain our forecasts for construction industry value growth of 2 .3% in 2014...
United Kingdom Insurance
BMI View: As of late 2013, both the non-life (re)insurers and the life companies are proactively working to boost profits (and, in many cases, premiums) in a global economic and financial environment that remains quite challenging.
Key Insights And Key Risks
Strategies vary from company to company but, as is apparent from their latest published results, include: acquisitions; development of new products; development of new channels (and, in particular, affinity marketing); realignment of portfolios, even if this means that premium growth is curtailed in the short-term; divestments of non-core businesses; and, even greater discipline in underwriting.
As expected, the Retail Distribution Review (RDR) has emerged as a key issue for many companies that are providing life insurance products and pensions. In the short-term, RDR...
United Kingdom Medical Devices
Espicom Industry View: Â 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 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, valued at US$10.2bn in...
United Kingdom Metals
BMI View: After a strong year for the UK steel industry in both production and consumption in 2013, we are forecast ing a muted recovery 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 the...
Oil & Gas
United Kingdom Oil & Gas
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 Â given falling volumes from mature fields , a lack of significant new discoveries and increasing explo ration, 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...
United Kingdom Petrochemicals
Although leaner following capacity cut-backs, the British petrochemicals industry is witnessing a surge in growth as the domestic market strengthens and external markets recover. The country is well positioned to capitalise on the high level of value added as well as strong integration of the production chain. However, in spite of a deal to import shale gas-derived ethane from the US, the sector will continue to face competitiveness issues over feedstock in the long-run, according to BMI's latest UK Petrochemicals report.
Until recently the petrochemicals industry has been under-performing compared to the rest of the industrial sector. The UK economy will set the pace for growth in Europe this year. H114 saw petrochemicals output growth of 11% year-on-year (y-o-y), suggesting that rapid growth in production was underway. The rebound came after petrochemicals had under-performed compared to the rest of the industrial...
Pharmaceuticals & Healthcare
United Kingdom Pharmaceuticals & Healthcare
BMI View: The decline in NHS pharmaceutical expenditure in 2013, despite an increase in prescription numbers, does not come as a surprise and is expected to continue beyond 2014. This drop in spending reflects the UK government's focus on containing costs within the healthcare sector, and in particular pharmaceutical expenditure.
Headline Expenditure Projections
Pharmaceuticals: GBP23.32bn (USD36.15bn) in 2013 to GBP22.90bn (USD37.33bn) in 2014;
-1.8% in local currency terms and +3.3% in US dollar terms.
Healthcare: GBP148.54bn (USD230.23bn) in 2013 to GBP152.05bn (USD247.85bn) in 2014; +2.4% in local currency terms and +7.7% in US dollar terms.
The UK is ranked...
United Kingdom Power
BMI View: Our subdued forecasts for the UK power sector are a consequence of stalling investment in new thermal capacity and protracted uncertainty over government energy policy. While the UK's Energy Bill and the EMR have been signed into law , and there has been encouraging activity in the nuclear sector , many investors are unwilling to commit capital until market conditions improve a nd there is more clarity over energy...
United Kingdom Real Estate
Â BMI believes the UK's real estate marketÂ will experience strong capital growth in 2015 driven by development profits in the office segment and a recovering retail sector. A strong occupational market and higher consumer discretionary spending have been the impetus behind growth in the two segments. However, greater speculation in the Central London office market has led to concerns of oversupply and higher development cost which we believe areÂ key downside risk factors.
While we expect the office segment and high quality retail space to outperform, rental growth in the industrial segment is expected to remain largely the same. This is because demand for manufacturing space has declined as UK de-industrialise. However, significant opportunities exist in the high-growth industrial space such as urbanÂ and edge-of-town distribution centres for small load deliveries as e-commerce evolves.
United Kingdom Renewables
BMI View: The UK's renewables industry continues to post robust levels of growth, particularly the solar segment - which saw new photovoltaic (PV) installations surpass 1GW during the first three months of 2014. However, we question the long-term sustainability of this growth , given the uncertain policy environment surrounding the UK renewables industry, particularly in the lead - up to the general election in May 2015. That said, we maintain our constructive outlook for the offshore wind sector, on account of the positive fundamentals underpinning the market.
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...
United Kingdom Telecommunications
BMI View : Â The UK telecoms market is mature , with a high penetration of all services, and a roll - out of next generation services including fibre and LTE services is in progress . As a result of its maturity the UK market has diminished opportunities for subscription growth, and operator strategies reflect this by increasingly focusing on value generation from subscriptions. In the mobile market this means operators are focused on rolling out LTE, with three networks operational from the end of August 2013, as well as VAS such as mobile advertising and payments. Meanwhile, in the fixed broadband sector, operators continue to target the...
United Kingdom Tourism
The British tourism industry is likely to experience strong growth in the coming years, thanks to the UK's well established reputation as a destination for cultural, historical and natural sightseeing as well as sporting and cultural events. The country will continue to benefit from the 'legacy effect' of the highly successful 2012 London Summer Olympics as well as a highly developed transport infrastructure. We expect to see an increase in both inbound and outbound travel over our forecast period leading to growth in the tourism sector, making the UK an attractive prospect for potential investors.
Figures for arrivals to the UK have improved since the credit crunch, along with the pick-up in global economic growth, and we expect to see this trend accelerate from 2015 onwards, causing arrivals to expand to 35.1mn in 2018.Â A range of cultural events, such as the annual Edinburgh International Festival, and sporting events, such as the 2014...
United Kingdom Water
BMI View: There are a number of significant differences between the water sectors of the UK. Those in Scotland and Northern Ireland are owned, and therefore subsidised, by each country ' s government, whereas in England and Wales the water sectors are completely privatised. These differing approaches have both merits and flaws especially when considering the potential for investment opportunities. The government run system is extremely good for the consumer due to government funding keeping tariffs incredibly low. Indeed, in Northe r n Ireland water is free to domestic users. This system does, however, limit the amount of outside investment which in turn could potentially limit the potential of the network and infrastructure. In England and Wales tariffs may be higher but, due to the...