UK economy: voter-hostile

Article Abstract:

The UK government's borrowing requirements should drop as the economy grows, and inflation is likely to be subdued due to low wage growth and reluctant of consumers to pay high prices. Employment has yet to rise strongly, and this gives employers more weight in pay negotiations. A strong rise in house prices is not likely due to employment insecurity, lower tax concessions, and pent-up supply adding to repossessions. Financial markets should benefit from this scenario, though low wage inflation and lack of a price rise in housing means that the ruling Conservative party may not win an election.

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Looking forward to a better year

Article Abstract:

Share prices fell by over 10% in 1994, but brokers forecast a rise for 1995. Bond yields rose more rapidly than expected in 1994 leaving equity yields looking low. Meanwhile, the UK economy continued to improve and interest rates were raised to control inflation. Tax cuts are expected in the 1995 Budget, which could help share prices in 2nd half 1995. Interest rates are forecast to rise by between 0.5% and 1% in 1995 with most of the rise implemented in the first half of the year. Some forecasts are for rates as high as 8% by Dec 1995.

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Barings collapse should not obscure other worries

Article Abstract:

The UK stock exchange was affected by the collapse of Barings, and there is concern that inflation could rise as a result of low investment. Companies have tended to repay debt rather than invest in new capacity, so productivity gains cannot easily be achieved. Sterling is becoming weaker which reflects lower confidence in the UK, mainly due to political concerns. The market for government securities (gilts) has seen a drop in overseas investment which could continue in 1995.

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