UK Economic Outlook: November 2012

Key messages

  • There is a gradually improving outlook for growth and employment across the UK as a whole. But this is patchy on a regional basis and somewhat brighter for London and the South East (see map above). The Eurozone outlook remains much more stormy, which creates downside risks around growth in our main scenario for which businesses should make contingency plans.
  • Despite recent more encouraging signs, the economy remains relatively fragile and businesses must remain agile, review their strategy to adapt to a slow growth environment in the UK, and respond to evolving global economic conditions.
  • Lower inflation should ease the squeeze on households, but consumer spending growth will take time to recover, particularly as food and energy prices are now rising again.
  • Services sectors will lead the recovery in 2013, but manufacturing should return to modest growth and the sharp decline in construction seen in 2012 should start to bottom out next year.
  • The share of UK exports going to the BRICs has the potential to double to around 16% by 2030. But to achieve this UK companies need to up their game relative to US, German and French rivals who have so far done better in exporting to countries like China and India.
  • Current conditions don’t support an immediate rise in interest rates, but if the Bank of England pre-announced their medium term strategy of returning the Bank’s base rate to a more sustainable level (say 2-3% by mid-2015) then businesses could plan how they can respond to this well in advance.