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UK economic predictions for 2005

By David Thomson, CEO, Close Invoice Finance

On the positive side, the UK economy continues to perform well and I expect that interest rates are likely to be relatively stable in 2005. The commercial property market is continuing to attract significant money flows from institutional investors and the ongoing strength of institutional demand for property is more than compensating for the downward trend in yields.

However, sentiment towards the property sector seems to be weakening as the recent rises in interest rates start to have an effect. Having said that, solid fundamentals should sustain property market momentum. UK equities are showing a capital return of some 7% ­ as measured by the All Share Index, plus a yield of 3%. This gives a 10% total return compared with inflation of 3%.

However, record levels of consumer debt, higher interest rates and rising oil prices will rein in the pace of economic growth next year. The Chancellor's growth forecasts for 2005 in the Pre-Budget statement were labelled "wishful thinking" by some after proving far more bullish than the view in the City, but he seems to have delivered against forecasts this year.

Overall, I'm optimistic that the UK economy will continue to perform reasonably well in 2005 but do not anticipate strong growth from the stock market.



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