EY ITEM Club Spring Forecast 2014

Economic forecast in summary

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The EY ITEM Club forecast Spring 2014

Figures are % changes on previous year except borrowing, current account and interest and exchange rates.

(*) Fiscal years, as % of GDP

Source: EY ITEM Club

“While risks remain, there’s no question that the UK’s economic recovery is on an increasingly firm footing. With GDP projected to grow 2.9% this year and 2.3% in 2015, and interest rates unlikely to rise until late 2015, the outlook is for a period of ‘steady as she goes’, characterised by sustained if unspectacular growth and underpinned by relatively low inflation.”

To come about, this benign scenario needs several things to happen – not least that rising consumer spending is supplemented by a rebound in business investment and exports, which official figures suggest are now kicking in. This would help the economy to register steady growth in output over the next few years while avoiding excessive rises in credit.

Such an outcome depends on a variety of factors ‘keeping the lid on’ different areas of the economy, preventing each from expanding too fast or too far. Growth in the workforce will restrain wage inflation, but not to the extent of impeding a recovery in in real wages; the FCA’s policing of mortgage income multiples will limit rises in house prices; the strong pound – together with lower commodity prices, as demand from China slackens – will dampen import costs and help to subdue inflationary pressures; and renewed investment will keep industrial costs under wraps by reviving productivity.

Peter Spencer, Chief Economic Adviser to EY ITEM Club