Economic Outlook for 2016
This Economic Outlook for 2016 is a personal opinion only. No reliance can be given on these views in any way. In order to consider and evaluate the economic outlook for the UK for 2016 one needs to consider the immediate political environment. This should then be reviewed alongside the global trading situation, particularly in respect of the availability of and price of key raw materials and then local (UK) market and consumer demand.
Let's take the political situation: a US Presidential election always takes centre stage every four years, not so much in respect of uncertainty and the level of change that may surround the result of the election (because there always seems to be very little) but the ability for the dollar to hold its value while the election brouhaha and run up exists. There seems more expectation in respect of the election of any President rather than what the President could then offer and do economically, once elected.
This year, there has to be a change as Obama has served two terms. The current choice appears very short of talent. Also, it appears to be only outside global events which create any distinction between terms of Presidencies year after year. The US ‘economic juggernaut' continues and the dollar wavers around the 1.50 to 1.65 exchange rate to the £. So stability can exist, which is what every entrepreneur wants.
The most recent interest rate rise in the US was perhaps to put off any currency weakening through 2016 (during the campaign), more than the economy strengthening, as it could be that the dollar may weaken through 2016 only to bounce back at the end of the year. The £ will feel better throughout the year, making exports cheaper not only to the US but also against the euro, as the uncertainty surrounding the long term viability of that ‘currency’ continues. Hence British businesses in the export market and UK tourists venturing abroad will have a feel good factor.
The UK government will continue its own form of austerity, to balance its books. However the favourable UK tax collection receipts from the SME market sector will continue to distract from a lack of buoyant consumer spending. There will be figures produced from time to time which are incongruent to a ‘feel good’ factor and the control and steadiness of the economy that is being experienced. Such that inflation will hold steady, the growth in wages will possibly exceed inflation as fuller employment beckons and everyone will feel better economically but spend less. The reason being that the continuing debt burden and overhang from the late 2000's.
Interest rate changes in the US are always followed in the UK some 18 months to 2 years later. This may well continue to be the case, particularly as the employment numbers improve, as mentioned above, but any raise in rates will be slow and sluggish, unless there is volatility with raw material price changes. So perhaps no UK interest rate rise in 2016, but in 2017.
Many home owners are still struggling to find the money to meet the monthly bills. House price inflation soars in the South east and yet the rest of the country's house prices stutter. There is no feel good factor and so consumers are not rushing to the shops or online. They are fickle with their purchasing, they are saving for the goods and not taking on excessive credit. Consumer demand will remain weak.
Fluctuations in prices of raw materials such as for instance oil, steel and other items will cause issues as they occur. However the volatility will be larger from time to time and more obvious giving rise to instability and uncertainty. This will not allow businessmen the confidence to invest. Growth will be undertaken steadily. The digital world will continue. What can be done electronically will be, what can be conveyed or transacted digitally will be.
It is now a ‘digital’ world. 2016 will see yet more moves towards that becoming much more evident. The UK economy will move forward – and it may seem sluggish progress. However there are opportunities for budding entrepreneurs, should they wish to take them.