In 2014 the UK economy is expected to grow by close to 3%. The OBR’s current growth forecast for 2015 is 2.4%. The UK has been the fastest growing G7 economy with unemployment steadily declining.
Here we take a look at ten risks to the outlook for UK growth in 2015.
1. Political uncertainty
Upcoming UK Parliamentary elections in May with the vote shared among five parties gives rise to political uncertainty as each looks to position policies to win votes. A lack of leadership is an unsettling prospect for business investors with Britain’s EU membership just one of a number of issues up for debate.
2. Eurozone instability
The Eurozone recovery remains fragile, with widespread weakness across member countries and unemployment expected to remain high. Germany will be a key focus to provide strengthening growth measures.
3.Global economic growth slows further
While strong US economic growth is forecast, China’s anticipated lower growth rates, Europe’s continued economic sluggishness and Russia on the brink of recession, all provide cause for concern.
4. Can the US go it alone?
As the US has been left as the sole economic beacon of the major economies, can it continue to carry global growth? Reliance on just one country lends itself to greater risk.
5. Will the oil price fall cause dislocation in world markets?
In theory the oil price fall should increase global GDP, as a 10% change in the oil price has been linked with around a 0.2% change in global GDP. However if the slide continues, 2015 could see countries largely dependent on oil exports suffer heavily as global economies risk diverging.
6. Currency and oil impact Emerging markets (EM)
Emerging markets are predicted to face exacerbated fragility with forecasted growth to be lower than performance in recent years. The strong dollar has put pressure on the price of oil which has fallen 40% since the start of 2014 causing further devaluation of EM currencies.
7. Russia verging on Recession.
Weakened consumer activity, reduced investor confidence from the impact of sanctions and falling oil prices have contributed to the sharp decline of the rouble. As interest rates soar, 2015 GDP figures look bleak with Russia’s economy forecast to shrink.
8. Will ‘the China bubble’ burst?
Malinvestment, high inflation and the oil price reduction have been a dominant shadow on China’s economic growth. Interest rate cuts did see a positive impact on the Chinese stock market and increased investment confidence. Will this be sustainable in 2015 or will the ‘infamous bubble burst’?
9. Deflation fears
With UK and Eurozone inflation falling, disinflation has started to become a theme, but is it deflation we should be concerned about?
10. Productivity – Are we investing significantly enough to create business growth?
UK Business investment dipped by 0.8% in Q3 of 2014 with an additional fall of 0.4% on exports indicating that companies cut back on spending. Continued investment in the advancement of technology and innovation will offer opportunities for enhanced productivity.
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