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 ChangesÂ
We have revised up our 2014 real GDP forecast to 3.1% from 2.9% previously
Key Risks To OutlookÂ...
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
BMI holds a bullish outlook for the UK passenger car market in 2014, on the back of improving consumer sentiment and pent-up demand in the market from a period of sustained declines. We forecast 10.4% growth in total vehicle sales, coming from a 13.5% increase in the commercial vehicle (CV) segment and a 9.9% rise in passenger vehicle sales.
In 2013, passenger car sales increased 12.8% 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 that 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
BMI view s the decision to bring the second Queen-Elizabeth aircraft carrier into service in the Royal Navy as based on its ability to project power. BMI thinks that public austerity, from which the UK defence sector is not protected, is likely to leek over into the Strategic Defence and Security Review (SDSR) to be held in 2015
Our security risk ratings calculate the UK as having a high level of domestic security due to a low crime rate and a low risk of interstate conflict. While terrorism continues to be an issue, we view the government as determined to respond to the threat. At the end of August, theÂ national terror level was raised to severe as a response to the so-called 'Islamic State', and the number of UK citizens travelling to Syria for...
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: Â We have a positive medium term outlook against other developed markets, as t he 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...
United Kingdom Infrastructure
BMI View : We have upgraded our forecasts for construction industry value growth in the UK to 4.3 % in 2014 and 3.5% in 2015, cementing the UK as Â one of the most attractive market s for infrastructure and construction globally . 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...
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 : 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 Â 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...
United Kingdom Metals
BMI View: Â After a strong year for the UK steel industry in both production and consumption in 2013, we are forecast ing Â 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 Â Sahaviriya Steel Industries and Tata Steel...
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: Â The UK has traditionally had high state healthcare expenditure, with patients enjoying free access to doctors and specialists, and easy access to medicines. However, the government currently accounts for more than three-quarters of healthcare spending, and the expanding, ageing population will continue to boost demand for healthcare, pushing the government to focus on cost containment.
Headline Expenditure Projections
Pharmaceuticals: GBP24,53bn (USD38.01bn) in 2013 to GBP24.67bn (USD40.95bn) in 2014; +0.59% in local currency terms and +7.7% in US dollar terms.
Healthcare: GBP148.54bn (USD230.23bn) in 2013 to GBP152.05bn (USD252.39bn) in 2014; +2.4% in local currency terms and +9.6% in US dollar terms.
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
BMI View: Â T he UK commercial real estate market is well placed for further expansion over H214 and into 2015 as a strong economic rebound supports demand for office and retail space in particular. The industrial segment will remain the underperformer as export activity continues to flag.Â
Falling unemployment and increased levels of household spending have provided support for rental rate growth in the two segments. 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 the UK de-industrialises and a sluggish eurozone recover demands export demand. However, a lack of supply in logistics and other retail facilities means that rental rates for the industrial market are likely to...
United Kingdom Renewables
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 Â 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.Â 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 lateÂ January 2014.Â It seems the EC has not set a binding renewable energy target on...
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
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...
United Kingdom Water
BMI View: Â The water sectors of England and Wales are completely privatised. This has the result that both sectors are well funded by outside investment and deliver an extremely high standard of service with top of the range technology and facilities. Tariffs are relatively high but so too is the rate of development, improvement and expansion. The water sectors of Scotland and Northern Ireland are owned and subsidised by their own governments. In Scotland water tariffs are low and in Northern Ireland there are no tariffs at all for domestic users. While being good for the consumer, these low tariffs , along with a lack of the outside investment that comes with privatisation, limit the scope for improvement and expansion within the sectors . Â With a rapidly...