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UK growth prospects look uncertain throughout 2012

It is expected that the OBR will revise down its GDP forecast, currently at 0.8% growth, bringing it closer to Cebr’s prediction of a 0.4% marginal expansion. The potential for rising unemployment, stagnant wage growth and reduced spending power may knock business confidence - in particular those close to the consumer pound.

To keep the wheels of the UK economy turning, the Bank of England recently sanctioned a further 50 billion pounds of quantitative easing, taking the total programme to £325 billion. The Deputy Governor of the Bank of England commented “I expect very subdued growth in the first half of the year, followed by a gradual strengthening, reflecting an ease in the squeeze on household incomes as inflation falls, complemented further out by some recovery in investment." Cebr expect the QE programme to reach £400 billion by the end of 2012.

The UK economy does not operate in a vacuum. Continuing trouble in the eurozone, the UK’s biggest trading partner, also presents a significant downside risk to the economic outlook; a second financial crisis cannot be ruled out entirely if a lasting solution is not found. The impact of persisting risks means that we do not expect to see UK GDP growth exceeding 2% until 2016.

Expanding the picture further afield, positive medium-term signals from the US combined with GDP growth in Asia and South America provide some encouragement to those who can take advantage of it. Excepting only a complete collapse of the eurozone, global GDP could grow by 2.7% in 2012, with China generating 7-8% of growth over the next 4 years.

Business failure predictions reflect this turbulent two-speed outlook. Following a 6% increase in the total number of insolvencies during 2011, we are predicting another marginal increase in 2012. These are expected to occur largely in the SME market. In terms of sectors, while Retail and Leisure look set to continue to suffer as households economise, high-tech growth could be good news for Telecom, Media and Technology (TMT). Manufacturing should be comparatively well placed too, benefiting from lower commodity prices and export opportunities driven by global growth.

For more information on any of the data or topics covered in Industry Watch please contact me or your usual BDO contact.

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