UK: Country outlook
Sunday, April 25, 2010
- After 12 years in government, the Labour Party is continuing to struggle in the polls and faces defeat at the next general election (due by early June 2010).
- The Economist Intelligence Unit expects the opposition Conservative Party to gain a modest overall parliamentary majority at the election. However, a hung parliament cannot be discounted, with the Liberal Democrats as kingmaker.
- The unprecedented policy response, at home and abroad, has stabilised the financial markets, but has huge medium-term implications. Transferring banks' balance-sheet risk to the public sector could sow the seeds of the next crisis.
- Concerns about the abysmal state of the public finances will dominate policy debate, as the fiscal deficit and public debt rise to post-war record levels. This will necessitate higher taxes and deep spending cuts. Industrial unrest is likely.
- We expect the Bank of England (BoE, the central bank) to begin to raise its main policy rate from early 2011. Concerns about gilt market volatility may lead the BoE to raise rates before exiting from its more unorthodox policy measures.
- Despite massive state-backed financial support, the banking sector remains in a precarious condition. Credit availability will remain constrained, as private-sector balance sheets are rebuilt and capital positions strengthened.
- After contracting by an estimated 4.6% in 2009, real GDP is forecast to grow by an anaemic 0.7% in 2010 and 1% in 2011. There is a risk of a renewed decline in output as inventory adjustment and stimulus measures fade.
Labels: Economy and Business, UK
posted @ 11:44 AM,
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