While economic growth for the UK in 2015 still looks good, analysts suspect it may be lower than expected. With contributing factors ranging from political uncertainty to events abroad, whether or not the UK will meet the latest predictions still remains questionable.

The General Election and Economic Forecasts

While the coalition government’s fiscal plans are still underway, uncertainty surrounding the next general election has seen the original forecast of 3.1% drop to 2.7%. As the business world remains unsure as to whether it’ll face further Conservative policies, or changes from a new Labour government, corporate confidence is dented.

The majority of this growth is set to take place during Q4, at 1.25%. Two-thousand-and-fifteen will see a good start, with 0.25% growth, followed by further modest increases in subsequent quarters.

Despite there being concerns over the way the political climate will affect current economic plans, it is expected that public sector borrowing will continue to decline. There may be concerns that projected plans are too ambitious, but a decline will occur nonetheless.

Although job growth is anticipated to continue during 2015, uncertainty surrounding wage growth is further affecting economic progress. Wages are expected to normalise in the middle of the year, leading to higher spending within the country. However, as the yen and euro may experience a 6.5% decline, the cost of the pound may increase by around 5%. This means UK exports become less competitive, which could in turn buffer the progress made through domestic spending.

Consumer Spending, Interest, and How They’ll Affect Economic Growth

With wages rising, one of the major contributors to economic growth will be consumer spending. However, there are recommendations for the Bank of England to raise interest rates beyond the current levels of 0.5% in the middle of 2015. While this may eventually lead to higher wages, it also means consumer spending will fall temporarily, leading to a slight decline in GDP. The Bank of England’s chief economist Andrew Haldane expects that rising interest rates will occur in short bursts. Over the next few years it could rise to 3%, a rate that may remain for years to come.

Overall, unemployment is expected to fall by 6.8% from Q1 in 2015 to Q1 in 2016. This includes a net reduction of 93,000 for the youth unemployment rate, and output production of 2.4% per person and per hour.

Other sectors predicted to contribute to the UK’s economic success in 2015 include the service industry, as well as construction and manufacturing. Business investments will grow by 7.4%, with similar patterns set to take place again in 2015.

Industries Expected to Offer the Best Opportunities

Across Europe, including the UK, the banking and telecoms industries are set to offer the best opportunities. As quantitative easing continues, banks will be able to borrow more from the European Central Bank (ECB). Thanks to low interest rates continuing across the continent, banks in the UK will be able to pass them on, leading to higher profit margins for businesses that need to borrow. As the real estate market is also recovering, economic support for banks continues.

Although regulatory measures throughout Europe wounded the telecoms industry, such as capping roaming charges, regulators are now encouraging telecoms businesses to invest elsewhere. As such, there’s a chance that revenues can rise within this sector.

Despite there being concerns over rising oil prices throughout Europe, predicted falls in 2015 mean that businesses can benefit in general. This leads to an overall decrease in operational costs, which are then passed onto the consumer in terms of pricing. Naturally, areas of business heavily dependent on oil prices – such as leisure and tourism – will see the biggest benefits.

While the UK’s economic and business prospects for 2015 look promising, there’s work to be done yet. This may mean that the coalition government’s initial predictions are pushed a couple of years beyond the original 2018 mark.

References:

www.bbc.co.uk/news/business-29680253
www.telegraph.co.uk/finance/bank-of-england/11252570/UK-should-raise-interest-rates-in-2015-says-OECD.html
www.britishchambers.org.uk/press-office/press-releases/bcc-economic-forecast-uk-growth.html
www.schroders.com/en/uk/private-investor/news-and-analysis/news/outlook-2015-business-cycle—european-equities/
www.thisismoney.co.uk/money/news/article-1607881/When-UK-rates-rise.html