UK: It Never Rains But It Pours?

Ok, so let’s admit it. The first thing that comes to mind when talking of Great Britain is usually the weather. Or rather, the bad weather.  But, at the moment it’s more than just one forecast that is looking gloomy for the Brits.

Retail sales took a nose dive last month and it stands as a telling sign of the failings of the economic system in the UK. You can get your brollies out again, it seems. There were some sunny spells, but, the storm is on again, at least that’s what the International Monetary Fund thinks as Managing Director Christine Lagarde stands poised to dictate to the UK that they need to get their act together to fuel growth. The UK budget deficit reached unprecedented levels (an increase from £8.9 billion in April 2012 to £10.2 billion in April 2013). The UK Chancellor of the Exchequer, George Osborne, looks like he is going to get told to lay off the austerity measures and spur growth through spending more by the IMF, despite the shortfall increase. April is traditionally a good month to fill the coffers of the Treasury Department as it’s the start of the new financial year and there is a boost from company-profit payments. This year, that didn’t happen. The IMF annual report gets published today and the pound fell along with a rise in government bonds in anticipation of a wrap over the knuckles for Osborne. The UK government has said it will stick to its guns, come what may. Burying your head in the sand is always a good alternative, isn’t it? Consumer spending, which tends to drive an average of 60% of GDP in the UK is still suffering from years of lower-than-inflation wage increases across the board. The target date for clear skies on the horizon was originally set at 2015, when the UK government believed that the deficit would be eliminated through spending cuts, austerity measures and increases in taxes. That date has been put off now further into the future and it looks like you’ll be needing your wellies until at least 2017.

But, it’s not all doom and gloom. In the coming three-month period, companies are forecasting a rise in output expectations. In a recent survey by the Confederation of British Industry in the UK (the UK’s leading business organization), 33% of firms estimate that they will have an increase in output, while there are only 15% that expect a fall. That means a +18% balance. Prices in the UK are set to have an average increase of +4%, which is the lowest since last September (standing at 3%). Expectations are still disappointing, but growth prospects are there. The CBI has predicted a growth in GDP of 1% this year, with double that figure next year. There is a rise in confidence amongst businesses and despite the economic climate hampering consumers, with inflation still surging way ahead of wage growth. Unemployment is set to rise again in 2013 (to 2.58 million) before it falls back slightly to 2.51 million in 2014. But, the outlook on EU growth prospects looks more than subdued.

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