Will the good times keep rolling?
In 2015, I predict the UK to continue its economic recovery and also finally yield a period of where wages grow faster than inflation. With the continual surge of discounters in the supermarket sector and oil prices stabilizing around the $60/barrel benchmark, inflation is set to remain low throughout 2015. On the other hand, in recent surveys many businesses have reported that they are prepared to increase wages and salaries for employees in 2015. If wage growth outstrips inflation then consumption will rise more strongly than investment and exports for another year.
Despite the growth in the UK, it will not come without uncertainty and change due to the eurozone. The biggest change in 2015 will be in May, when the UK undergoes political upheaval by the way of the General Election. Although the Conservatives have a ‘proven’ record with the economy I think we will see the Labour party winning the most seats however they may have to enter into a coalition to maintain power. I do also see UKIP gaining a large amount of seats, which may push more immigration reform in the following months – which will be bad for business, markets and the economy.
And no, I didn’t forget to discuss interest rates, throughout the past year the CM writers and I have dotted around when the Bank of England will raise the base interest rate. Well, barring any surprise event I think if wage growth continues at its current pace and consumer confidence surges then the hike will come in August 2015.
QE or nah?
Outside of the UK, I can be sure of one thing, the decline of globalization and a divergence between the Anglo-Saxon economies and the rest of the West. In the lead up to the financial crisis, most developed countries were huge benefactors of the opening up of trade barriers, working and middle-class westerners enjoyed cheaper goods to fuel their consumerism obsession. By contrast, emerging countries were happy to accept the influx of foreign capital and upward trajectory of their rural class. Now, across Europe those outside the economic elite are now suffering slower wage growth and still sobering from the credit-binge prior to 2008.
The effect? Many are looking at immigration as the source of the problem and a willingness to concentrate on domestic and inward issues. Right-wing political movements have gained momentum across the Europe, which will not be appeased unless eurozone economic growth returns. This may happen, if Mario Draghi’s QE fairytale becomes a reality. The country that will be most robust to this changing mood is the U.S., with a monstrous domestic economy and a ‘settled’ political landscape compared to recent years. It will able to cope in a less integrated global environment in comparison to China, Japan or Germany which will all see further depreciation of their currencies. In particular, Chinese growth will be under the spotlight as its economy transitions from high exports and investment to a high consumption economy.
Overall, in 2015 I expect to see a moderation of growth in the UK, with the U.S. booming and possible recovery in Europe towards the end of the year if QE is implemented and a Grexit is avoided. Despite these good fortunes, I still believe there may be some surprises as the Ebola crisis, the Russia-Ukraine standoff and the oil price fall were in 2014. There is still so much to cover regarding politics, business and law but hopefully I’ve summed up our expectations for the economy in 2015.
Just as a preview on the markets, I think next year we should still expect a multitude of deals, particularly IPOs, mergers and acquisitions; with oil prices at unprecedented low levels, oil & gas firms will be ripe for takeovers. Furthermore with the economic recovery back on track in the U.S., many firms stateside will have the confidence to go public, including Uber? U.S. stock indices may reach new heights for another year with low oil prices and improving consumer confidence likely to see more people buy new cars and go on more holidays, great news for airline and automobile firms. In addition financial stocks should do well towards the second half of the year, with market activity and increased volatility once rates finally rise, financial services firms should do well. Lastly, another exciting prediction could be Apple’s new watch, after a successful 2014, the new gadget watch could propel the firm to a $1 trillion market capitalization.