United Kingdom

RGE's Q1 2010 United Kingdom Outlook

RGE expects a gradual resumption in domestic demand and some positive contribution of net exports to drive the recovery in the UK before private consumption takes the lead again in H2 2010 after a GDP contraction of 4.8% in 2009. Compared to the more bullish forecasts, however, we expect private consumer demand to remain rather subdued especially in H1, primarily due to differences in the savings rate forecast and the length of the deleveraging cycle. Given households’ large debt overhang, the need to restore balance sheets in view of tighter lending standards becomes imperative. Slack in the labor market, some erosion of purchasing power through higher inflation and the expectation of higher taxes ahead will continue to drag on the UK economy throughout 2010. In addition, some Q1 2010 consumption will be brought forward into Q4 2009 due to the VAT normalization starting in January 2010. On the positive side, the UK managed to keep the unemployment rate below the double-digit levels registered in other advanced economies. It managed this through downward wage flexibility and a sharp reduction in hours worked. Given the fall in labor productivity and the still-high level of slack in the labor market, RGE expects the unemployment rate…

Read the Q1 2010 United Kingdom Outlook.