Country Report United Kingdom June 2009

Outlook for 2009-10

• Data suggest that the worst of the global economic freefall may be ending, but there are still clear risks to the Economist Intelligence Unit's political, policy and economic forecasts. A deeper recession and social instability are possible.
• After 11 years in office, the governing Labour Party faces defeat at the next general election (due by June 2010). The unpopularity of the prime minister, Gordon Brown, will militate against Labour pulling off a dramatic recovery.
• We expect the opposition Conservative Party to defeat Labour at the election and gain a modest overall parliamentary majority. A hung parliament cannot be entirely discounted, however, with the Liberal Democrats as kingmaker.
• The government's response to the financial crisis has huge policy implications for years to come, in terms of the state's considerable financial commitments and its expanding role in the economy. Further state intervention is possible.
• Despite huge state-backed financial support, UK banks remain in a precarious state. Credit availability will remain constrained for some time, as the private sector undergoes a rigorous process of balance-sheet adjustment.
• Real GDP is forecast to contract by 4% in 2009 and by 0.5% in 2010. Given the weak state of the global economy and the UK's macroeconomic imbalances, there is little to suggest a sustainable fast-paced recovery is on the horizon.
• The public finances will deteriorate at an alarming rate in 2009-10. This will necessitate a prolonged period later of higher taxes and public spending restraint.

Monthly review

• Against a backdrop of widespread public anger over revelations of pervasive abuse by parliamentarians (of all political parties) of their expenses system, Mr Brown faced down an open revolt in the Labour Party in early June.
• Under pressure after Labour's worst-ever performance in local and European elections, a series of high-profile cabinet resignations and party demands for a leadership contest, the prime minister refused to stand down.
• The Bank of England (central bank) announced plans to expand its purchases of private-sector corporate assets as part of its quantitative easing programme.
• Leading indicators pointed to signs of stabilisation in the economy, with the services PMI in May rising into "positive territory" for the first time in a year.
• Bank lending to the non-financial sector (households and firms) remained weak; lending fell in April for the first time since the series began in 1997.
• CPI inflation eased to 2.3% in April, still above the central bank's target rate, as the depreciation in the value of sterling boosted import prices.

Source: Country Report

This report covers the following industry codes:
SIC Code: 10;60;70;49;20;47;37;65;48;53
NAICS Code: 212;52;72;22;11;311;48;336;53;517;44