Here, we talk about the driver of economic growth in the UK, whether or not the UK will be raising its rate any time soon, and whether or not now is a good climate for UK businesses big and small.
The global economy isn’t doing very well at the moment. During these times, I often get questions with regard to what we can expect from businesses in different regions around the world. So naturally, one of the big questions I’ve been asked as of late is, ‘Is the current climate strong enough to support business growth in the UK?’ This is a very interesting question, and there are several ways to analyse business climates. However, the ultimate driving factor is the economy in the region.
The driving factor for economic growth in the UK
The UK has a very interesting economic strategy. Instead of manufacturing, the country’s primary driver of economic growth is commodities mining. Of course, the country is working to balance things more toward manufacturing, but those efforts aren’t proving to work out well. This creates a bit of an inherent problem for the UK. Ultimately, the country’s economy is at the mercy of the commodities market; a market that at the moment, isn’t doing very well. The reality is that commodities have been declining for quite some time. There are two big drivers in this movement:
Most commodities around the world are priced using the United States Dollar. As a result, when the USD is strong, demand for commodities starts to decline. That’s because when the USD is strong, commodities become more expensive in nations outside of the United States. Unfortunately for the commodities market, and the UK economy for that matter, the USD has been trading on highs for quite some time, and that is putting quite a bit of pressure on the commodities market.
It is not only the world’s second-largest economy, it is the world’s largest consumer of raw materials. This means that when economic conditions are positive in China, demand for commodities tends to increase. However, when China’s economy is doing poorly, demand for commodities decline. Currently, China’s economy is in the dumps. Unfortunately, this adds further pressure on the commodities market and the UK economy.
Will the Bank of England raise its interest rate?
Based on strong economic movement last year, it was expected that the UK would increase its interest rate. In doing so, it would show confidence in the UK economy and likely improve conditions in the region. Unfortunately however, it doesn’t look as though this is going to happen any more. Unfortunately, the beginning of the year was incredibly bad for global markets and the global economy as a whole. As economic conditions around the world struggle, exports in the UK continue to decline, especially to China. As a result, economic conditions in the region are starting to head back onto the path of a landslide! So, I’m not expecting to see much by way of positive movement from the Bank of England.
Is the current climate good for UK businesses?
The reality here is that businesses tend to do well in positive economic conditions and poorly in negative conditions. Unfortunately, conditions in the UK are currently far from positive. As a result, I have to say that conditions for businesses small and large are poor at the moment. Now, that doesn’t mean that some businesses won’t be profitable. It simply means that as a whole, things could be better for businesses around the region.
What do you think?
Is the climate positive or negative for UK businesses? Let us know your opinion in the comments below!