Forward Outlook

Economic and Political Outlook

The Economist reports that with the economic outlook deteriorating, resentment growing over the rising tax burden, and the prime minister Gordon Brown unable to connect with the electorate, the governing Labour Party will find it difficult to regain the trust of voters.

The main opposition Conservative Party is in a strong position and has the momentum, but will face increasing scrutiny as the next general election, due by May 2010, draws closer. The outcome of the election is still uncertain.

The Economist Intelligence Unit (EIU) forecasts headline inflation to remain over 3 per cent in 2008, well above the 2 per cent target of the Bank of England (BoE, the central bank), before easing back to an average of 2.5 per cent in 2009. A modest cut in interest rates is expected next year.

Real GDP growth is forecast to slow from 3 per cent in 2007 to 1.7 per cent in 2008 and 1.4 per cent in 2009, as the impact of the international credit crunch dampens growth in the important financial services sector and raises the risk premiums on lending.

EIU reports that in response to the rise in inflationary pressures (and inflationary expectations) in recent months; the financial markets have priced out any possibility of a further cut in interest rates in 2008.

According to the Nationwide index, average property prices in the UK fell at their fastest rate for 17 years in May. The number of mortgage approvals fell to a record low.

Tourism Outlook

There has been continuing softening in the holiday market to New Zealand over winter, although overall visitor numbers were up in June. This is partly a reflection of the visit by the England rugby team and associated media and supporters. Irish arrivals were also similarly influenced, being up 11.6 per cent.

Key operators continue to report slower trading conditions but strong inquiry levels for New Zealand, with the rapid increase in the Australian dollar against the pound (23 per cent in 18 months) giving New Zealand an advantage.

The slowdown in the economy, together with increasing airfares, fuel surcharges and environmental taxes, could impact on long-haul travel over the short-term. Air capacity remains a concern for the forthcoming peak season.

While environmental concerns are not as prevalent as 12 months ago, New Zealand must remain vigilant as there is an expectation we will have environmental practices in place.

Competition is fierce and New Zealand needs to be very aggressive in order to maintain market share.

Sources: Tourism New Zealand Regional Rap, www.economist.com (UK Country Briefing)