United Kingdom Country Risk Report & Analysis

A fast vaccination campaign will counterbalance negative effects from Brexit in 2021

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MEDIUM RISK for enterprise

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

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GDP	USD2825.21 bn (World ranking 5, World Bank 2018)
Population	66.49mn (World ranking 22, World Bank 2018)
Form of state	Constitutional Monarchy
Head of government	Boris Johnson (Conservative Party)
Next elections	2024, legislative

Supportive economic and fiscal policies
High trade balance surplus on services
Healthy banking sector
Diversified export structure
Very friendly business environment

High trade balance deficit on goods
High current account balance deficit
Uncertainty surrounding Brexit
Decreasing long term per capita income
Low productivity growth

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In the UK, the fast vaccination campaign is counterbalancing negative effects from Brexit: We have revised on the upside our GDP growth forecast for the UK from +2.5% to +3.7% in 2021. This is driven by the additional fiscal spending announced within the 2021 budget (3.2% of GDP), which will provide a tailwind of up to +1.1pp to real GDP growth in 2021. Support measures have been prolonged to three months beyond the date of all restrictions being lifted (until end-September) and should continue to protect companies' excess cash (GBP101.4bn at the end of January, or 4.5% of GDP). The hyper-amortization scheme at 130% coupled with excess cash and the state-guaranteed recovery loan scheme should help business investment recover fast in 2021 (we expect +12.5% vs. the +17.2% needed to catch up with the fall in the capacity utilization rate). In addition, positive confidence effects linked to the vaccination campaign (herd immunity expected in May) and to the reopening of the services sector should feed into a strong depletion of excess savings from households (1.9% of GDP).

On the other hand, Brexit is expected to cost growth around 1pp to 2pp in 2021. In January, UK exports of goods fell by more than GBP5.6bn and we expect between GBP12bn and GPB24bn of losses in 2021 depending on how long-lasting the disruption at the border will be. Additional downside risks to the scenario are linked to potential tariff increases from the EU side as a retaliation to the UK’s unilateral decision to extend the transition period for full border checks in Northern Ireland. Finally, official negotiations have started on the equivalence for financial services, on which both the EU and the UK maintain a hard stance. - April 2021.

Trade structure by destination/origin

(% of total)

Exports	Rank	Imports
United States 14%	1	16% Germany
Germany 10%	2	8% China
France 6%	3	8% United States
Netherlands 6%	4	8% Netherlands
Ireland 5%	5	7% Belgium

Trade structure by product

(% of total)

Exports	Rank	Imports
Cars 12%	1	9% Non-Monetary Gold
Pharmaceutical 7%	2	9% Cars
Aeronautics 7%	3	5% Pharmaceutical
Engines 4%	4	3% Aeronautics
Non-Monetary Gold 4%	5	3% Telecommunications Equipment

An increase in the average DSO to 53 days is perceived as a result of high value unpaid invoices.

Low
Medium
Sensitive
High

Payments
Court proceedings
Insolvency proceedings

Payments
Court proceedings
Insolvency proceedings

UK courts are efficient in delivering timely decisions, but recent changes in charges mean it can be expensive for large value debts. Timely escalation from credit control to skilled external debt collection agencies remains effective.

The insolvency framework is oriented towards the protection of creditors’ rights, although an emphasis has been made on the need to rescue viable businesses. Such proceedings would not guarantee that the debt would be recovered as in practice there are no limitations as to how much of the debt may be written off during renegotiations. Furthermore, liquidation proceedings would rarely yield any proceeds to unsecured creditors.