Country Risk Service United Kingdom 1st Quarter
The Economist Intelligence Unit, January 2013, Pages: 17
The Conservative Party-Liberal Democrat governing coalition has a solid majority in parliament. But relations will be increasingly tested by economic weakness, 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 continue to dominate policy debate. As expected, progress on fiscal tightening has slowed in the face of economic weakness. The original five-year consolidation plan has been extended to eight years (to 2018), and will probably need to be extended further, beyond 2020, as deficit targets fail to be met. The Bank of England (BoE, central bank) will persist with highly accommodative monetary policy, despite above-target inflation. Focus is likely to shift from quantitative easing (QE) to other unconventional steps. No rate rise is in prospect. 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 only modestly in 2010-11, before contracting slightly in 2012. We forecast a return to sluggish growth of 0.5% in 2013 and a subdued average of 1.1% in 2014-17.
The prime minister, David Cameron, opposed a core recommendation of the Leveson inquiry he set up into journalistic standards, rejecting the idea of a statutory underpinning for a new UK press regulator.
In the annual Autumn Statement on the economic outlook, the chancellor reiterated the government's commitment to austerity, while revising down growth forecasts for 2012-17 and extending fiscal tightening plans to 2018.
Country Risk Service United Kingdom 1st 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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