Moderate growth is the dominant trend in the UK Hospitals industry. Revenue is expected to rise at a compound annual rate of 1.1% over the five years through 2015-16. It is set to reach £70.6 billion in the current year following a 1.5% expansion. This growth has been stimulated by booming demand for the industry's services from an ageing, expanding population. Public expenditure on health care has risen to satisfy demand.

Through the National Health Service (NHS), the government is responsible for administering the lion's share of hospitals nationwide. As a result, the size of government grants that finance the NHS have a dramatic effect on total industry revenue. Growth in health-care expenditure, which is forecast to continue in the future, is therefore promising for the Hospitals industry. However, the rate of that expenditure growth has been limited in recent years by the government's attempts to bring down national debt after poor economic conditions for many years. The government has also sought to shift some of its health-care burden to the private sector as an inundated NHS struggles to cope with unprecedented demand.

In April 2013, the government implemented unprecedented reforms to the NHS. Part of that reorganisation opened lucrative public contracts to general tender, giving private hospitals the opportunity to bolster their revenue base. This provides private ventures with an opportunity, especially as some struggled as a result of the long-lasting effects of the economic downturn, which encouraged consumers to be more frugal in their spending.

The government hopes that greater private-sector involvement will inspire more competition, prompting efficiency measures and cutting costs in NHS hospitals. Sustained demand and cost-cutting measures are likely to help private operators' profit margins expand. Industry revenue is forecast to grow at a compound annual rate of 1.7% over the five years through 2020-21, reaching £76.9 billion. Although higher than the previous five-year period, limits on NHS spending will continue to dampen industry revenue.

Key External Drivers

Population aged 65 years and over
People aged 65 and over tend to use hospitals the most because declining health often accompanies old age. Thus, an increase in the population of this age cohort causes demand for hospital services to strengthen, marking an opportunity for industry revenue growth. During 2015-16, the number of people aged 65 and over is expected to rise, boosting demand for the industry’s services.

Real government consumption expenditure
Government spending determines how much money is allotted to the NHS. During 2015-16, real government consumption expenditure is expected to fall, with restrictions on government expenditure continuing to pose a threat to the NHS’s budgetary allocation and industry revenue.

Real private consumption expenditure
Providing private health care is typically more lucrative for operators than fulfilling NHS contracts. Rising private consumption, expected in 2015-16, is something the industry should welcome. However, given the recent economic difficulties, many households are keeping a tight rein on their spending, meaning people are likely to opt for public health care that is free at the point of consumption rather than spending on private care.

Number of births
A growing population requires ever more hospital services and childbirth itself stimulates demand for the industry. Demand for hospital services is adversely affected when there are fewer women giving birth. During 2015-16, the number of births in the United Kingdom is expected to increase, creating greater demand for the industry’s resources.