Country Forecast United Kingdom Updater

The Economist Intelligence Unit, May 2013, Pages: 17

The Conservative Party-Liberal Democrat governing coalition has a solid majority in parliament. But relations will continue to be tested by economic weakness, fiscal austerity, a threat of industrial action and the protracted euro zone crisis. It would be a gamble for either party to trigger an early election before 2015, but one cannot be ruled out given the grim economic outlook. Efforts to shrink the largest-ever peacetime budget deficit will continue to dominate policy debate. As expected, progress on fiscal tightening has slowed in the face of economic weakness. The initial five-year austerity plan has been extended to eight years (to 2018), and will probably need to be extended beyond 2020, as deficit targets fail to be met. The Bank of England (BoE, the central bank) will persist with highly accommodative monetary policy, despite above-target inflation. More unconventional forms of quantitative easing (QE) are likely. No rate rise is in prospect. After a 6.3% slump in output over five quarters in 2008-09, real GDP recovered only modestly in 2010-12. We forecast continued sluggish growth of 0.5% in 2013 and an average of 1% in 2014-17.

Various welfare reforms as part of the government's deficit-reduction plans took effect in April, including cuts in housing and council tax benefits, tighter claimant criteria and a three-year 1% limit on annual increases in most benefit payments.

The BoE announced an extension of its so far largely ineffectual Funding for Lending Scheme (FLS) to the beginning of 2015, increasing the incentives to banks to lend and broadening the scheme to include non-bank lenders. It will benefit the housing market more than lending to businesses.

Country Forecast United Kingdom Updater

United Kingdom at a glance: 2013-17
OVERVIEW
Key changes from last month
Political outlook
Economic policy outlook
Economic forecast

Country forecast overview: Highlights

Country forecast overview: Key indicators

Country forecast overview: Business environment rankings

Country forecast overview: United Kingdom's business environment at a glanc
Policy towards private enterprise and competition
Policy towards foreign investment
Foreign trade and exchange controls
Taxes
Financing
The labour market
Infrastructure

Fact sheet

Outlook for 2013-17: Political stability

Outlook for 2013-17: Election watch

Outlook for 2013-17: International relations

Outlook for 2013-17: Policy trends

Outlook for 2013-17: Fiscal policy

Outlook for 2013-17: Monetary policy

Outlook for 2013-17: Economic growth

Outlook for 2013-17: Inflation

Outlook for 2013-17: Exchange rates

Outlook for 2013-17: External sector

Data summary: Global outlook

Data summary: Gross domestic product, current market prices

Data summary: Gross domestic product, at constant prices

Data summary: Growth and productivity

Data summary: Economic structure, income and market size

Data summary: Fiscal indicators

Data summary: Monetary indicators

Data summary: Employment, wages and prices

Data summary: Current account and terms of trade

Data summary: Foreign direct investment

Data sources and definitions
Global data
Domestic data
Abbreviations

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