It’s time for our annual look ahead to see what the New Year will bring. Our Top Ten predictions for 2014 are:
1)Monetary policy has already been tightened both in the UK and the US, with the ending of the Funding for Lending Scheme for residential property in the UK and the beginning of tapering in the US. 2014 will see more tightening with a reasonable possibility of the first rise in interest rates for 7 years in the UK and the first rise in 8 years for the US.
2)Economic growth should be the strongest since the global financial crisis for both the UK and the US with both countries getting close to 3%. The Eurozone will be much more sluggish but even so will probably return to positive growth.
3)Growth in Asia is likely to be similar to this year.
4)London should boom. As businesses open their chequebooks, spending on business services – especially digital – which are the mainstay of the London economy will balloon. Meanwhile the City is likely to come back strongly. London’s growth could easily exceed 4% in 2014 and might approach 5%.
5)The prospect of monetary tightening should keep both the £ and the $ strong. But as the year goes on, it is possible that sterling will start to be affected by the balance of payments position – for the first time since the 1970s.
6)The UK starts 2014 with a current account deficit of £55-60 billion – nearly 4% of GDP. The rapid growth – even if export performance improves – will inevitably suck in imports and it will be hard to keep the deficit below £80 billion for the year. At some point this will start to worry the currency markets, possibly during 2014.
7)There is a referendum on Scottish independence on 18 September 2014. The most likely result is a small no – possibly the worst of all worlds since it is unlikely to resolve the issue. But two other results are also possibilities – a big No which would kill the issue off for the foreseeable future and a small yes. A Yes vote could have dramatic consequences not just for Scotland but also the rest of the UK.
8) The coalition parties will want to emphasise their differences as the next election in May 2015 approaches. Our best guess is that the coalition will hold together but even if it does so it will be messy.
9)There are Euro elections in 2014. The bookies have UKIP odds on to win the most seats! We’re not so sure….
10)The Premiership is an unusually open race this year – Manchester City look most likely winners but Chelsea and Arsenal are possibilities. The 6 Nations rugby is also fairly open – we are tipping France again though they not only confounded our prediction of a win last year but even managed to collect the wooden spoon. England’s abysmal cricket form over the winter could continue into the summer though they ought to be able to ambush Sri Lanka on green wickets at the beginning of the season. It is difficult to see them beating India on the more spin friendly wickets later in the summer.