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United Kingdom Country Risk Report Q2 2016

United Kingdom Country Risk Report Q2 2016

Core Views

The UK economy outperformed most major developed states in2015, and will continue to surpass the eurozone in 2016 and 2017.

In light of positive structural economic reforms undertaken by thegovernment, coupled with flexible monetary and exchange ratepolicies, we remain bullish on the long-term economic prospectsfor the UK relative to the eurozone over the longer term.

Major Forecast Changes

We have revised up our 2015 estimate for the UK's current accountdeficit to 4.4% of GDP, from 5.0% previously, on the back ofstronger-than-expected growth in services exports and a narrowingin the primary account deficit.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Economy Healthcheck: Underwhelming ECB Action Clears Path For Rate Hikes
TABLE: ECONOMIC DASHBOARD
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Gradual Improvement In External Accounts Lies Ahead
We have revised up our 2015 estimate for the UK's current account deficit to 4.4% of GDP, from 5.0% previously, on the back of
stronger than-expected-growth in services exports and a narrowing in the primary account deficit. Although the current account deficit
will remain large, a gradual narrowing is expected over the coming quarters.
Outlook On External Position
TABLE: CURRENT ACCOUNT
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS EXPORTS
TABLE: TOP FIVE GOODS IMPORTS
Monetary Policy
BoE To Hold Fire Until Q216
With the first US rate hike now behind us, the Bank of England will follow suit. However, the surprise cooling in UK wage growth in Q415
will prompt the MPC to hold fire until Q216.
TABLE: MONETARY POLICY
Monetary Policy Framework
Fiscal Policy And Public Debt Outlook
Autumn Statement: Not The End Of Austerity
TABLE: FISCAL POLICY
Structural Fiscal Position
Chapter 2: 10-Year Forecast
The UK Economy To 2025
UK Will Outperform Eurozone Over The Long Term
We hold to an upbeat assessment over the longer term and expect growth to outperform the eurozone. Supportive of this view is the
relatively competitive nature of the UK economy, independent monetary and exchange rate policies as well as a major fiscal reforms.
However, we warn that a number of challenges remain, such as an ageing workforce as well as low educational and training attainment
in the poorest areas.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Brexit: Cameron Lays His Cards On The Table
The demands laid out in British Prime Minister David Cameron's letter to the European Council President are likely to gain enough
concessions to enable his government to campaign for the UK to remain in the EU. However, the demands are nowhere near
substantive enough to convince eurosceptic Conservative MPs to stand behind their leader and support the 'remain' campaign, and the
lack of concrete action on tackling immigration will ensure continued support for the 'leave' campaign.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Eight Factors That Could Cloud The 2020 General Election
The election of Jeremy Corbyn as leader of the UK's main opposition Labour party increases the chances of the governing Conservative
party winning the next general election in 2020. However, the UK faces a very eventful period over the next five years, and there is no
shortage of 'shocks' that could make the next election more unpredictable than currently envisaged.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: DEVELOPED STATES – LABOUR MARKET RISK
TABLE: DEVELOPED STATES – LOGISTICS RISK
TABLE: DEVELOPED STATES – CRIME AND SECURITY RISK
TABLE: DEVELOPED STATES – TRADE AND INVESTMENT RISK
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Unfinished Business In 2016
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: UNITED KINGDOM – MACROECONOMIC DATA & FORECASTS

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