2016: A year of continuing conflict

Last year at about this time I wrote a blog predicting some of the events that would impact upon businesses in UK.

I made three main predictions:

  1. That the price drop in oil would impact upon the political stability of a number of producer countries, uppermost in my mind was Russia
  2. That the UK political scene was hanging on a knife-edge and that UKIP were likely to make a large impact upon the result of the General Election in May 2015.
  3. That if Syriza won the Greek election, which it did, then it could be the start of a general move to the left in other parts of Southern Europe with a general anti-austerity movement occurring.

Looking back now I do not think that I was alone in thinking that the world would be more unstable at the end of 2015 than at the start. Albeit for different reasons than I had foreseen. The dominant force of anxiety comes from the Middle East where Islamic State has successfully generated a sense of fear in mainland Europe, and where the civil war in Syria has created an exodus of refugees into Europe by whatever means they are prepared to risk.

At the same time there is now a perceived need, or maybe opportunity, for other countries to get involved. Russia, America, France and UK are all involving their military forces in the region. Perhaps it is not so much 2015 as 1945 once again, with influence over the Middle East being at stake.

The American people are beginning to feel threatened with Islamic terrorist inspired acts having taken place on homeland soil at San Bernadino in early December 2015. This has played right into the hands of Donald Trump who is not ashamed to take political advantage of the situation and stoke up the fears of many American citizens and potentially propel him into the position of Republican Presidential Candidate for the election on 8 November 2016.

Meanwhile in UK despite winning a clear majority in the May 2015 general election both the Conservative and Labour party appear to be going through turbulent times. Both parties seem to be preoccupied by internal issues; the Tories over Europe and Labour concerning virtually everything except Europe. The only UK political party that seems to be riding high is SNP with a clear desire to devolve from the United Kingdom.

Indeed as I write this I wonder how on earth we are capable of finding a way forward in 2016.

In terms of the UK business picture, with near zero inflation (primarily caused by the failing oil price) it is unlikely that interest rates will rise soon. Some commentators are suggesting that oil prices may fall further, and coupled with the uncertainty created by the promised European referendum in UK it is unlikely that interest rates in UK will be rising soon.

Meanwhile the UK Government spending screws continue to be tightened by George Osborne. Government spending is forecast to continue to reduce its budget deficit by 1.1% of GDP per annum for the next five years. Whether it achieves this objective or not is irrelevant. Without a doubt this Government will not be inflating the economy in the near term.

So where does this analysis leave us?

I predict:

  • Continuing near zero inflation and equally low base interest rates
  • Steady growth in UK economic headline statistics
  • Employment and real wages rates rising
  • Stagnant commodity prices, especially oil prices
  • Continuing international anxiety caused by IS terrorism threats
  • More infighting within both the Tory and Labour parties

We can only hope that in 12 months time the world will be more politically stable, but I fear that the rise of IS will continue and that there will be a robust response from US, Europe and Russia. Is it something we are all going to have to get used to.

Simon Bruce

Author Simon Bruce

Simon qualified as a Chartered accountant with BDO London in 1982 and then began a career taking in banking, manufacturing and international trading working in UK, Europe and Australia. He has worked with publicly quoted companies, family companies and start-ups.

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