Country Risk Service United Kingdom 4th Quarter
The Economist Intelligence Unit, October 2012, Pages: 17
The Conservative Party-Liberal Democrat governing coalition has a solid majority in parliament. But relations will be tested by economic weakness, the effects of fiscal austerity, a threat of industrial action and the protracted euro zone crisis. It would be a major gamble for either party to trigger an early election before 2015, but this cannot be ruled out, given the depressed medium-term outlook. Efforts to shrink the largest-ever peacetime budget deficit will dominate policy debate. A highly ambitious fiscal tightening programme will entail tax rises and the deepest sustained period of public spending cuts since the 1940s. The Economist Intelligence Unit expects weak economic activity to lead to slippage from official deficit targets. More quantitative easing (QE) is expected from the Bank of England (BoE, the central bank) in 2012-13, with no rate rise forecast before at least 2016. Severe financial contagion to larger euro zone economies would trigger major stress in the UK's still weak banking sector. After a 6.3% slump in output over five quarters in 2008-09, real GDP recovered modestly in 2010-11. The economy is forecast to contract by 0.5% in 2012 and record subdued annual average growth of 1% in 2013-17.
A moderate rightward shift among Conservative cabinet members in the first coalition reshuffle points to a more traditional party agenda in the run-up to the next general election.
Amid ongoing weakness in the construction sector, the government pledged another review of planning laws and slightly eased some existing regulations. An independent commission is to conduct yet another review of UK airport capacity.
Country Risk Service United Kingdom 4th Quarter
United Kingdom at a glance: 2013-17
OVERVIEW
Key changes from last month
Political outlook
Economic policy outlook
Economic forecast
Risk assessment
Sovereign risk
Currency risk
Banking sector risk
Political risk
Economic structure risk
Rating definitions
Sovereign risk
Currency risk
Banking sector risk
Political risk
Economic structure risk
Overall country risk
Central scenario for 2013-17: Political stability
Central scenario for 2013-17: Election watch
Central scenario for 2013-17: International relations
Central scenario for 2013-17: Policy trends
Central scenario for 2013-17: Fiscal policy
Central scenario for 2013-17: Monetary policy
Central scenario for 2013-17: Economic growth
Central scenario for 2013-17: Inflation
Central scenario for 2013-17: Exchange rates
Central scenario for 2013-17: External sector
Key risk indicators
Ratings summary
Quarterly indicators
International assumptions summary
Economic structure
Public finances
Exchange rates, interest rates and prices
Financial sector
Current account
Foreign payment and liquidity indicators
External trade
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