Annual FT economists’ survey: UK growth forecast to continue
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Britain’s recovery is secure and will continue at a good pace in 2015 even if growth is likely to be a bit weaker than last year*, economists said in one of their most optimistic assessments since the financial crisis.
Of 90 economists surveyed, 77 thought that decent expansion rates would endure another year with only 10 expecting a slowdown to a “disappointing pace of growth”.
The responses to the 10th annual Financial Times survey of economists forecasts for the coming year, are the most upbeat since before the financial crisis.
Sir Alan Budd, former government chief economic adviser, said economic expansion “will mainly depend on domestic demand, supported by faster growth of household incomes”.
Charles Goodhart, a former MPC member, said both would be welcomed by households across Britain. “They will respond to better times by consuming more with gusto,” he said.
The recent slide in oil prices to below $60 a barrel has hugely improved prospects according to Tony Dolphin of the Institute for Public Policy Research, who had previously worried about a slowing global economy.
Andrew Oswald of Warwick University said: “Energy is at the heart of an economy. The usual lag from oil prices to visible prosperity is one to two years”.
Costas Milas of Liverpool University thought that even a “revived” Greek crisis would not have the impact it had in 2010 and Britain’s economy should be able to shrug off eurozone weakness, although that also meant there was likely to be little boost from exports in 2015.
Amid unusual consensus, the main point of dispute among economists was whether growth would slow progressively and 2014 was a high point.
Michael Saunders of Citi was alone in predicting very strong growth and even an improvement in the eurozone economy. “The consensus was far too gloomy on the economy in 2013 and 2014 and remains too gloomy for 2015,” he said.
A more widespread view was that expressed by George Magnus, adviser at UBS, who said, “unless there is a big productivity upside surprise, 2015 may be as good as it gets before the UK runs into constraints”.
Only a minority of the FT’s panel of economists thought the UK would reach full employment in 2015, but the scope for further large reductions in unemployment would fall through the year.
Bart van Ark, chief economist of the Conference Board, said there was still some room for recovery in the UK in 2015, but “the long-term growth trend of the UK will gradually drop to below 2 per cent, about the same as the euro area”.
Many economists agreed with Jagjit Chadha of Kent University that “the key to growth, as ever, will be the return of productivity and business investment, which has been persistently hampered by financial frictions, weak private demand and uncertainty”.
Risks to the outlook include an indecisive General Election in May, geopolitics and a further eurozone crisis, economists said. But Jonathan Portes, director of the National Institute of Economic and Social Research, said the oil price fall would boost growth.
A small minority of economists were pessimistic about 2015, suggesting growth was vulnerable and would disappoint.
Danny Gabay of Fathom Consulting said that without “artificial boosts . . . the UK will slip back to its new normal rate of trend growth of between 1-1.5 per cent a year, the reason being that the productivity shortfall has not been addressed, just disguised”.
*Full text of answers to the question
Will Britain’s economy sustain a decent pace of economic growth in 2015? Please explain your answer.
Howard Archer, chief UK & European economist, IHS Global Insight
I expect the economy to grow 2.6 per cent in 2015. The economic fundamentals remain broadly positive for the UK and I believe growth will be decent through 2015. Persistent low oil prices (Brent oil is forecast to average US$68/barrel in 2015) are expected to keep UK inflation very low as well as helping global growth to gradually improve (including in the eurozone), which will help UK exports. Meanwhile, earnings growth is expected to improve through 2015, thereby lifting consumers’ purchasing power along with further rises in employment.
Assuming that there is no major extended political uncertainty following the May 2015 General Election, this backdrop should underpin healthy business confidence and support robust business investment. Continued easing in credit conditions should further help matters while interest rates are likely to only edge up later on in the year.
Melanie Baker, Jacob Nell, Morgan Stanley
We expect growth to slow from this year’s above trend 3 per cent, but still clock in at a respectable 2.5 per cent in 2015, supported by gradually rising pay growth. Domestic demand should slow as fiscal consolidation picks up pace again. We expect a dampening impact on investment from higher election-related fades.
Dame Kate Barker, former MPC member
Yes probably, if decent pace means 2 per cent plus. The fall in the oil price will boost consumption in the first half. Uncertainty around the elections and probable clarity about fiscal tightening afterwards may slow the pace of growth towards year-end.
Nicholas Barr, professor of public economics, LSE
I expect growth to be positive but not very fast; households and companies are still drawing in their horns to reduce their debt levels.
Sir Alan Budd, former MPC member
Yes, between 2 and 3 per cent. It will mainly depend on domestic demand, supported by faster growth of household incomes.
David “Danny” Blanchflower, Dartmouth College
I expect the UK economy to continue to slow. It appears slowing of business and consumer confidence first started in the spring of 2014 along with the eurozone. The reverse occurred in spring 2013 when they all ticked up together. I expect at best only a small rise in real earnings, which will feed through to lower consumption. Consumers are going to reduce their borrowing.
David Cobham, professor of economics, Heriot-Watt University
I expect that something like the recent pace may be maintained, that is some growth in GDP, marginally faster than the previous long term underlying growth rate, with some further fall in unemployment (and maybe a slight fall in underemployment), but only a slow pickup in productivity growth.
Bronwyn Curtis, OMFIF
Growth in the UK should be “satisfactory” if we just take the overall number. It will be down from 2014, but robust enough to bring in an overall growth rate in a range about 2.5 per cent. The lower oil price will put more money in consumers’ pockets and real wages will be rising. Recent data on retail sales, the PMIs and the labour market are all suggesting that the economy is expanding nicely at the moment.
But, the risks to growth on both sides are higher than usual. The lower oil price and a strong US economy could see global growth gradually revised higher in 2015, rather than lower as it was in 2014. Unfortunately for the UK economy, when it looks too good to be true, then it usually is.
UK growth is fragile as it is almost entirely dependent on the willingness of the consumer to keep spending and dipping more deeply into their savings. To do that consumers must feel confident in the future and there are more headwinds in 2015 than there were in 2014. House prices won’t rise as much and domestic politics will be decidedly messy. Exports and business investment is already faltering.
Global uncertainties are also higher. Policy makers are in uncharted territory, politics is fragmenting around the world and the US dollar is rising. What if “Super Mario” runs out of believable options, deflation takes hold in Europe and Abenomics doesn’t work?
Charles Davis, Centre for Economics and Business Research
We expect the UK economy to slow in 2015 but we are not talking about a disaster. It’s natural to expect the rapid, above-trend growth we have seen in 2014 to slow and all the key short term indicators that we look at have consistently shown that business sentiment is coming off the boil. The external environment is still very challenging; a pretty much flatlining eurozone; recession in Japan; major geopolitical uncertainties and the slowdown in China. This isn’t exactly a recipe for a take-off in export growth. But on the upside, lower oil prices should benefit the UK even if the North Sea production & investment pipeline is likely to take a major hit. Business investment has been increasingly solid and that should continue as companies opt for productivity enhancing capital, while consumers look set to be in a better position to drive the recovery. Of course, the big uncertainties over the shape and pace of fiscal consolidation will affect businesses and are likely to materially impact the economy as spending cuts bite and tax rises provide headwinds. On balance, we expect growth to be around or a little below the long run trend of 2.4 per cent.
Charles Goodhart, former MPC member
Yes, between 2.5 per cent and 3 per cent. The decline in CPI, driven by the fall in oil and commodity prices, will provide a decent boost to the real incomes of most of the population, for the first time for years. They will respond to better times by consuming more with gusto. Investment will fall back a bit owing to political concerns, but the consumer will carry us through.
Costas Milas, Liverpool University
I believe the UK economy will expand by something like 2.7 per cent to 2.8 per cent despite the (current) slowdown in the eurozone area. At the same time, the ECB will most probably proceed with QE, which will support (to some extent) eurozone growth. Incidentally, I do not expect a “revived” Greek crisis to have a “domino” impact on the rest of the Euro area. Euro area policy makers are now much more prepared to “deal” with Greece (although Greek policy makers pretend they do not understand this!).
David Kern, British Chamber of Commerce
UK GDP growth will almost certainly slow in 2015, from the 3 per cent pace expected in 2014. Eurozone weakness and fiscal restraint will be dampening factors, which will only be partly offset by limited falls in the savings ratio. But 2015 growth will stabilise at a level well above 2 per cent and Britain’s medium-term growth will be slightly higher in the next few years than envisaged in the recent OBR forecast.
DeAnne Julius, former MPC member
I expect the UK’s growth momentum to continue through 2015 unless knocked off course by external events in the eurozone or by further Putin misadventures. All private sectors are expanding — services, manufacturing and construction — and job creation appears strong. These forces will easily offset the continued squeeze on the public sector.
Diane Coyle, Enlightenment Economics
Yes, if incomes continue to rise faster than inflation; if not, no. A solid recovery needs the gains to be spread reasonably widely.
Dieter Helm, Oxford university
Yes. The sheer scale of the stimulus remains: the UK is still borrowing 5 per cent GDP per annum (one of the largest fiscal stimuli in the developed world) and real interest rates are negative — it remains one of the biggest combined monetary and fiscal stimuli packages in British economic history, overwhelmingly relying on consumption not investment and entailing a large trade balance.
George Magnus, adviser to UBS
Economic momentum should keep going into 2015, though a little slower, maybe 2.5 per cent. New factors such as positive real income growth, lower oil prices and the stamp duty impact on housing, will supplant older and fading tailwinds like high rates of employment and the decline in the savings rate. But unless there is a big productivity upside surprise, 2015 may be as good as it gets before the UK runs into constraints from low income formation, investment and savings, plus the external deficit, and changes to fiscal policy, via higher taxes.
Sir Howard Davies, former MPC member
It is likely to slow down a little. We cannot be wholly insulated from the Eurozone’s continued stagnation, there are other threats to global growth in the East and the boost from rising house prices will tail off — though perhaps not until after the election.
Ian Plenderleith, former MPC member
Continuing growth, at perhaps 2.5 per cent, barring serious unforeseen shocks, driven principally by rising real household incomes, helped by lower energy costs.
James Knightley, ING
I am upbeat on the prospects for the UK economy in 2015 even though the external environment is not particularly positive. Consumer spending looks set to be the main growth driver with real wages and rising employment the key story here. Business confidence appears to be in good shape with investment spending set to grow strongly relative to recent years. These two components of GDP should more than offset sluggish government spending and a negative contribution from net trade given the Eurozone’s troubles.
Politics looks set to be the biggest threat with uncertainty surrounding the outcome of the General Election potentially weighing, particularly if smaller parties — SNP, Ukip, Greens — are involved in any new coalition. Their degree of influence and what it means for taxes, the UK’s relationship with the EU and how any devolvement of political powers will work could lead to more cautious behaviour from businesses (both domestic and foreign) and households. Political problems in Greece (and potentially Spain later in the year), may heighten concerns about the future of the eurozone. This could threaten business sentiment and could hurt net trade.
James Meadway, New Economics Foundation
The UK’s GDP growth will be comparatively decent for a while yet, assuming the flow of borrowing to consumers can continue at its current pace. That growth, however, is dependent on the UK’s luck holding out, both in terms of the global economy and in avoiding the consequences of overstretched household finances, and the current account deficit.
A drift into outright deflation (with the majority of the CPI’s components now showing falling prices) would have further adverse consequences for the debt-led growth we are dependent on.
Sir John Gieve, former MPC member
My central case is that growth continues at a decent pace through 2015. First there is still some room to catch up from the long stagnation; second it is clear that monetary policy will be accommodative while the contractionary effects of the step change in regulatory requirements should begin to ebb; and third the fall in the oil price will promote expansion.
John Hawksworth, PwC
Yes, though we expect some moderation from about 3 per cent growth in 2014 to about 2.5 per cent in 2015 in our main scenario. Consumer spending should remain reasonably strong in 2015, helped by a gradual return to positive real income growth. But net exports look set to make a negative contribution to GDP growth given the continuing malaise in the eurozone and fiscal tightening is likely to accelerate after the election whichever party is in power. Business investment growth may also be held back to a somewhat slower rate than in 2014 due to global geopolitical risks and domestic political uncertainties.
John Llewellyn, consultant
It looks likely to grow at 1/2 per cent to perhaps 3/4 per cent quarter-on-quarter through 2015. Reasons:
Fiscal policy will not tighten until after the election and even then take some time to take effect; monetary policy will remain highly accommodating all year; the fall in oil and other commodity prices will contribute 1/2 to 3/4 per cent quarter-on-quarter to real income growth through much of the year; and sterling seems likely, if anything, to strengthen on a trade-weighted basis.
John Muellbauer, Oxford university
Yes. The fall in oil and commodity prices is like a big tax cut for households.
John Philpott, consultant
Yes. I expect 2.6 per cent real GDP growth, with household consumption being supported by higher employment and slightly faster real wage growth due to a modest improvement in productivity, this in part offsetting slower growth in business investment and continued weakness in net exports. However, this expectation is based on the assumption that the eurozone avoids deflation (which is becoming an ever greater risk and would hamper growth prospects in the UK) and that there are no short-term negative economic consequences from political uncertainty caused by a hung Parliament after the UK General Election.
Mark Miller, Economist Intelligence Unit
The UK economy is likely pause for breath in 2015, following robust growth in 2014. Still, above-trend expansion is likely albeit with risks stemming from a slowdown in key UK export markets, notably the eurozone. If labour productivity trends are anything to go by, medium-term economic growth prospects are not especially encouraging.
Neil Blake, CBRE
Yes, survey data are still unusually high for the UK and certainly do not indicate an abrupt slowdown. Worries about another eurozone recession are overdone, which together with falling oil prices will be supportive to consumer demand
Neil Williams, Hermes
Yes, the UK’s “sugar rush” recovery will continue, albeit at a more manageable 2.5 per cent rather than 3 per cent speed, as the eurozone’s dark cloud lingers. Another two years coming of negative real policy rates, on top of the five we’ve had, will leave more cheap cash looking for a “home”, with feel-good equities, growth assets and property all benefiting.
Patrick Minford, Cardiff University
Yes. Economic growth is now going into a phase supported by low commodity prices; this is a regular feature of the world business cycle (cf 1960s, 1990s) when commodity investment in new technology and investment has been spurred by a previous peak in commodity prices.
Peter Dixon, Commerzbank
Yes. I am looking for a growth rate about 2.5 per cent. I expect the UK to face some global headwinds and for this reason, it is unlikely that we will see much of a lift from net trade. Against that, low inflation should help support activity volumes. Another factor supporting the continuing recovery is that we still have a lot of pent-up activity after five years of weakness. For example, industrial capacity utilisation rates remain high, which should support investment.
Phil Thornton, Clarity Economics
The expected 3 per cent GDP growth in 2014 will be a one-off and fuelled by initiatives such as its Right To Buy and Funding for Lending housing schemes. Accelerated cuts to public spending and a slowdown in housing activity will pull growth down to 2 per cent or below. That’s sustainable but whether it’s “decent” is in the eye of the beholder.
Ray Barrell, Brunel University
Economies recover slowly from recessions. The UK will continue to recover. I expect growth to be strong in 2015 as low oil prices will ease production constraints and raise consumers real incomes. Some extra growth will come from increased trade with other countries that benefit from lower oil prices.
Richard Batley, Lombard Street Research
Growth is likely to be around trend. The key is risk is not the headline growth rate but that easy monetary policy, lower oil prices and an uncertain investment environment will bias growth to household spending and away from business investment.
Richard Jeffrey, Cazenove
I expect the economy to grow less rapidly in 2015 than in 2014. However, at an expected rate of about 2.5 per cent, growth will remain above the long-term sustainable rate of 2.25 per cent. Although I expect real household incomes to rise more strongly in real terms, demand during 2014 was boosted by several non-repeating factors. In addition, although still showing good growth, capital investment is likely to expand less quickly.
Ryan Bourne, Institute of Economic Affairs
Forecasting is a mugs game and there are potentially significant global headwinds, but my hunch is that the economy will continue to grow slightly above the medium-term trend in 2015 due to improving productivity.
Yes. In the absence of shocks output normally grows in line with the growth of capacity
Tony Dolphin, IPPR
I think this is now the most likely outcome. A few months ago, I was inclined to believe that developments in the global economy — David Cameron’s “red lights” — would lead to weaker growth for the UK in 2015. But these developments have led to a huge fall in the oil price, which will boost real incomes and profits and so support demand and growth in the UK.
Nick Bosanquet, Imperial
Growth 2.8-3 per cent. From demand side driven by consumption. First, full effects of rise in household wealth (especially for baby boomers with paid off mortgages) as a result of a rise in house prices, and of internet shopping — faster transaction times and wider range of opportunities — are still working through. Household debt is down and BoE with NMG survey shows anxiety level lower. Real wages will rise.
Second, on supply side a new economic mix is emerging with stronger growth in private sector. Medium-sized companies in creative industries, education, engineering design, cyber industries, food processing — key drivers. Also growth in tourism, life sciences, vehicles and avionics — for past two boosted by fall in fuel prices. South West/Severn Valley /Eastern Scotland key areas for the new Nordic economy — much more like Scandinavia than like Germany and the US. This new economy should give a good 10 years for the UK. This mix has led to more stable growth in living standards.
Private sector employment has shown the biggest rise since 1945 in past four years, much of it outside London. The new economy is well suited to markets from rising world middle class and congested populations on Lagos-Shanghai line. (World population forecast 9bn by 2050)
George Buckley, Deutsche Bank
We’re expecting a slower, but more sustainable, rate of economic growth next year. Growth looks likely to be domestically driven, by consumer spending and business investment, with the pound’s appreciation over the past two years and the fragility of the euro area economy dampening any contribution from net exports. Real wage growth has finally turned positive, thanks to higher nominal pay growth and lower inflation, which should be supportive of household spending in the year ahead.
Frances Cairncross, Heriot-Watt University
Growth will be slower than in 2014 because of a rise in US (and UK) interest rates and the continuing weakness of Europe, and may falter as the year progresses and spending cuts and higher rates start to bite. But it will still be faster than anything across the Channel. Lower prices, especially for energy, will give a boost to spending power and real wages.
Jagjit Chadha, University of Kent
The 30 or so UK forecasters that were surveyed by HMT earlier this month project a range for 2015 GDP growth of between 1.9 to 3, which suggests that my professional colleagues expect a decent rate of growth. If I were to ask myself why this view might be wrong, I would look towards any further deterioration in the performance of the eurozone, some sclerosis introduced by an indeterminate election result or financial fissures exposed by the unwinding of unconventional monetary policies. The key to growth, as ever, will be the return of productivity and business investment, which has been persistently hampered by financial frictions, weak private demand and uncertainty.
Kevin Daly, Goldman Sachs
Yes. The principal factor underlying our optimism is our belief that real income growth and, in particular, household real income growth will improve over the coming year.
Danny Gabay, Fathom Consulting
Depends what you mean by decent. Growth next year could be around 2 per cent. But we think that without further stimulus or artificial boosts like HTB, the UK will slip back to its new normal rate of trend growth of between 1-1.5 per cent p.a. the reason being that the productivity shortfall has not been addressed, just disguised.
Sarah Hewin, head of macro research Europe, Standard Chartered Bank
Yes — the positives (rising real wages and falling unemployment, an energy ‘windfall’ for households and businesses, still low interest rates, an improving global economy and competitive pound) will probably outweigh the negatives (uncertainty over the outcome of the election, geopolitical risks).
Neville Hill, Credit Suisse
Yes, albeit with slightly less vigour than in 2014. We see the economy putting in growth of 2.7 per cent. That strength will largely be driven by domestic factors.
Consumer spending should be increasingly supported by strong real labour income growth, driven by continued strong job growth, rising wage growth and low CPI inflation that’s largely driven by lower energy and imported goods costs. Government spending should remain solid going into the general election next year. And although business confidence has weakened somewhat, it remains ebullient and consistent with further growth in investment spending.
The one weak point will be net trade. UK domestic demand will continue to grow faster than most of its trading partners, especially the euro area. Europe shouldn’t be a major problem for growth if it remains a disappointment (ie anaemic but positive growth) rather than a disaster (ie the financial volatility and collapse in domestic demand experienced in 2011-12).
So a weak external environment will manifest itself in a wide current account deficit, pregnant with future risks to UK growth, rather than outright UK cyclical weakness in 2015.
Brian Hilliard, Société Générale
Yes. The balance of domestic demand now looks more sustainable with the new national accounts data showing a more convincing increase in investment. Moreover, the risk to economic stability from the housing market seems to be receding as there is mounting evidence of a peak having been reached. I worry about the external balance but I think that is a risk for further down the road.
Andrew Hilton, director Centre for the Study of Financial Innovation (CSFI)
Of course: 2.75-3 per cent, which is and will be pretty damn good by Euro standards. Why? Well, most of it is cooked in — and lower oil prices will give consumers a boost, particularly in the first quarter. I am not wild about remuneration outpacing inflation (it was precisely that UK real wages were falling that generated the boost in jobs), but that will help too. And, whatever happens post-election (which could be nasty), that won’t kick in until later in the year.
Steve Hughes, head of economic and social policy at Policy Exchange
Probably. The economy has momentum going into 2015, but the risks to growth are many and varied. The euro area could cause problems, as could the unwinding of loose monetary policy by central banks, as could a variety of geopolitical issues. Multiple sources of big uncertainty is the new normal.
Stephen King, HSBC
Depends what’s meant by “decent”. As 2014 came to a close, there were signs of a loss of momentum. While the UK economy should benefit from lower oil prices, there are nevertheless a series of domestic and international headwinds: poor productivity growth, excessive dependency on household leverage, political uncertainty, continuous austerity, a large balance of payments constraint and, across the Channel, a thoroughly miserable eurozone. So no recession, but the risk is that growth slows.
Ruth Lea, Arbuthnot Securities
Yes. Household consumption demand will be supported by a modest pick-up in earnings growth and the very weak inflation outlook will boost real earnings. Employment should continue to strengthen, which will also support consumption. Business investment should be fairly robust. Whilst exports will be damped by the travails of the eurozone, the US is recovering well.
Gerard Lyons, Chief Economic Advisor to The Mayor of London Boris Johnson
Yes, a decent pace, between 2.5 per cent to 3 per cent. The outlook depends upon the interaction between economic fundamentals, policy and confidence. Fundamentals are mixed, with a twin deficit problem, but real incomes are rising. Monetary policy needs to remain accommodative, especially if fiscal and regulatory policy tighten. Confidence is hardest to call, but a recovery should help investment. It is a multi-speed global economy, with US recovery and lower oil prices supportive, but the problems in the eurozone remain a worry for the UK in 2015. The UK recovery is still too vulnerable to shocks.
Allan Monks, JPMorgan
Yes. Growth will continue at an above trend pace. The forces responsible for the UK recovery — narrower mortgage spreads and a strengthening in confidence — remain in place. Growth momentum at the end of 2014 was still strong, and spending in early 2015 will receive a boost due to the impact of lower inflation on household purchasing power. This momentum will also be aided by faster wage inflation and external support from an improving Euro area economy.
Kathrin Muehlbronner, vice-president sovereign risk group, Moody's
We expect the UK economy to grow by around 2.5 per cent in 2015, which would compare favourably with peers. Growth will be driven primarily by private consumption and investment, with a zero contribution from the public sector and a negative net contribution from external trade. Fiscal consolidation in the UK and a weak economic performance of its main trading partners will be a drag on the economy next year.
Andrew Oswald, Warwick University
Yes, that is likely. Even if there is some background slowing in the world economy, the lower oil price will eventually feed through into better profit margins for most British companies, and then into more generalised prosperity. Energy is at the heart of an economy. The usual lag from oil prices to visible prosperity is one to two years.
David Owen, Jefferies
Barring any unforeseen event, yes. Recovery is underpinned by a decisive turn in the corporate profit cycle, a tighter labour market and below target inflation, boosting real incomes. 2015 could also be the year that the euro area and world trade more generally recover, so exports should do better. On the output measure of GDP we see the recovery also broadening out from business services into manufacturing, with financial services perhaps making a positive contribution for the first time since the start of the downturn. Growth of between 2.5 per cent and 3 per cent would not be out of line with what has been seen historically at this stage of the economic cycle once allowance is made for the fact that we are coming out of a banking crisis and recovery was delayed.
Adam Posen, director, Peterson Institute
Yes, Britain’s economy will sustain decent growth, meaning above 2 per cent. It will be dragged down by European stagnation, but raised by cheaper energy and the lack of overheating for housing — as well as a temporary fiscal-monetary combination that will be stimulative.
Vicky Pryce, CEBR
Yes, but pace will slow down through the year. Lower energy costs will help businesses and consumers will carry on spending as real incomes finally rise but uncertainty over the elections and a slow growing eurozone will constrain investment and exports
Bridget Rosewell, Volterra
Yes, there is sufficient momentum although it will be an uncertain year
Michael Saunders, Citi
Yes, growth will be strong, probably above 3 per cent, fuelled by cheap money, cheap oil and continued strength in business investment. Headwinds from deleveraging and fiscal policy are modest, while the euro area is unlikely to get worse and may even improve a bit. The consensus was far too gloomy on the economy in 2013 and 2014 and remains too gloomy for 2015.
Andrew Smithers, Smithers & Co
Yes. Nominal wages appear to be picking up and inflation is being temporarily held down by oil and other raw material prices, so real wages should rise. Rising house prices are likely to keep savings down so that consumption should rise and maintain growth.
Ian Stewart, Chief Economist Deloitte
Markets are focused on the downside from lower commodity prices and weakness overseas; but for the UK these factors mean a substantial boost to real incomes and easier monetary policy. Cheap money, rising earnings and low inflation will be a real tonic for the UK consumer through 2015. Together with good growth in corporate hiring and investment this points to the UK posting respectable growth around the 2.5 per cent mark in 2015.
Phillip Shaw, Investec
Yes. We expect; i) stronger pay growth, which will drive consumer spending without unduly damaging business investment; ii) firmer world economic growth (as, contrary to popular belief, does the IMF), which will support exports; and iii) lower energy prices, which will act as a mini-stimulus package. This should offset slower activity in the housing market and modestly higher interest rates, at least over 2015. In brief, we expect the current pace of economic growth of around 3 per cent to be broadly maintained.
David Tinsley, UBS
Yes the UK should maintain a decent pace of growth. Our annual forecast is for growth of 2.6 per cent in 2015. This incorporates the view that there will be some slowdown from a cooling in the housing market impacting residential investment and service sector activity. The eurozone, of course, remains a drag. That said, I would say the risks are currently upside. The boost to consumer’s cash flow from lower oil prices should mean that consumption growth takes up the slack for any slowdown elsewhere. It is not inconceivable we actually get stronger annual growth than the 3 per cent or so we saw in 2014. The election remains a key uncertainty, though as yet there are no obvious signs of it impacting business or consumer confidence.
Daniel Vernazza, UniCredit
Yes, although growth will be somewhat weaker than the stellar growth of 2014. This expansion has the characteristics of a durable one: consumption will by supported by a quite strong rise in real wages and business investment plans remain high. Meanwhile fiscal tightening has been delayed until 2016/17. But it’s natural that growth in 2015 will ease compared to 2014, as the initial fillip from pent-up demand wanes and the output gap closes in the second half of next year — leaving less scope for above potential growth.
Keith Wade, Schroders
Yes, the economy faces headwinds from a slower housing market and election uncertainty, but should continue to grow at a decent pace helped by the drop in oil prices.
Kitty Ussher, Tooley Street Research
Yes. There is significant spare capacity and also catch-up in the economy due to low confidence in 2010-14 even when the worst of the financial crisis was over. The tanker has turned and now it will motor. Although the eurozone is weak, again the situation there is far brighter than it was two years ago. The US is in a good position. All the main indicators point to the upside.
Peter Warburton, Economic Perspectives
If 2 per cent is decent, then yes. With anticipation of tighter fiscal, monetary and macro-pru policies in 2015, the headwinds for the economy will intensify. Consumer and business confidence typically fall back after a general election, whatever the outcome.
Peter Westaway, Vanguard
It will sustain a decent growth rate but a declining one. Having growth at or around trend when output is still below potential is disappointing, both by historical comparison and for living standards. This poor growth picture is explained by the continuing sluggish contribution from trade held back by euro area woes, fiscal restraint and positive but still relatively subdued investment.
Simon Wells, chief UK economist, HSBC
Growth may slow slightly next year. Investment and net exports disappoint year after year meaning households need to keep growing spending. Although inflation is falling very low and pay growth is creeping up, households may not be willing to reduce savings rates enough to maintain the recent growth pace of growth. The world is looking more uncertain, as is the domestic political situation.
Matthew Whittaker, Chief Economist, Resolution Foundation
The economic recovery has genuine momentum now, but things are likely to cool slightly in 2015. With plans for an acceleration in the pace of fiscal consolidation and continuing difficulties among our main trading partners, growth is set to rest increasingly on consumption and investment in the private sector. Business investment is likely to increase, but recent data revisions suggest that this is from a higher base than previously thought, reducing the scope for a rapid rebound. Consumers will therefore hold the key to growth in the coming year. With confidence returning and interest rates remaining low, spending is likely to be healthy, but it’s hard to see it being strong enough to sustain the very rapid rate of economic growth recorded in 2014.
Mike Wickens, York University
Yes. And it will be led by the private sector. Higher consumption and the higher investment due to the greater confidence this has brought will continue. Lower oil prices will help sustain this. The main drag on UK growth will continue to be the extremely poor performance of the eurozone.
Chris Williamson, Markit
I’m expecting growth to weaken as the year proceeds, with GDP for the year up 2 per cent. Higher consumer spending (linked to lower inflation, fuller employment and rising wages) is likely to be the main driver, but there is a risk that uncertainty surrounding the General Election, further government spending cuts, a softer housing market, falling oil revenues and output, continuing euro area weakness and higher interest rates are all factors that are likely to subdue the pace of economic growth.
Robert Wood, Berenberg Bank
Yes, in all likelihood a more than decent pace of expansion. Cheap money and cheaper oil are reasons enough for growth to pick up a bit after the slightly slowing in the second half of 2014. Indeed, the Bank of England has effectively added chunky extra stimulus in recent months, by signing up to market expectations for rates to stay lower for longer than seemed likely in the summer. The fall in mortgage rates now under way will add more oomph to consumer spending, on top of cheaper petrol. A tighter labour market should mean gradually improving pay deals, while continued returning confidence should mean increased investment. In other words, the UK economy is gradually returning closer to normality. Russian turmoil and uncertainty around the general election are the big risks.
Bart van Ark, Conference Board
About one-third of the strong growth rate in 2014 was the result of the “recovery bonus” from the crisis. That effect will still work its way through 2015, even though it will gradually lessen. The long-term growth trend of the UK will gradually drop to below 2 per cent, about the same as the Euro Area.
Tony Yates, Bristol University
Yes, but not stellar. I expect that the oil price fall will be a big boost to real incomes. But there are headwinds: UK political instability given that we could get not just a hung but an ungovernable Parliament after the May election. And uncertainty emanating from the eurozone on account of a possible victory by Syriza in Greece, and the dependence of the EZ on a depressed Russia.
Azad Zangana, Schroders
It should do. In the absence of serious fiscal tightening, ultra-low interest rates and now with the boost from lower oil prices, the UK should enjoy another strong year of growth.
Yes. External headwinds not strong enough to knock UK off course given domestic momentum and oil price helps a lot.
Yes, unless the election leads to a really weird outcome that scares consumers/markets/the Bank. This seems unlikely. More likely is that wages will finally pick up, and that will accelerate things.
More generally economies are cyclical, so sustaining a decent pace of growth seems the most plausible outcome.
David Riley, head of credit strategy at BlueBay Asset Management
The UK will experience another year of above trend growth on the back of falling unemployment, modestly rising household incomes and in the first half of 2015 a growth-friendly policy mix. But in the absence of a pick-up in productivity and private capital expenditure, the sustainability of the UK recovery will increasingly be questioned.
John van Reenen, director of the Centre for Economic Performance at the London School of Economics
In the absence of an unexpected major shock (eg from eurozone or China) it should be able to grow at least 2.5 per cent to 3 per cent. There is more spare capacity in economy than generally thought as signalled by that output is not much higher than pre-crisis levels and we are still have very muted wage growth.
I do not believe that the supply side of UK or global economy has been seriously impaired preventing it from growing at pre-crisis levels.
Andrew Simms, fellow at the New Economics Foundation
The question rather implies that there can be no debate over whether Britain can or should sustain orthodox economic growth in 2015, and that such growth will automatically be a ‘good thing.’ That is only because we have come to conflate the fact of GDP growth with a range of benefits seen as dependent on it, whilst largely ignoring the costs of growth. But the growth figures are just an indication of the quantity, not quality of economic activity.
This point is tacitly acknowledged by the Office for National Statistics’ decision to start publishing some data on life satisfaction. A better question would be, will Britain get more of what makes life worth while in 2015 while moving simultaneously to operate within safe planetary boundaries. In answer to this, key trends and policies are likely to push us in the wrong direction, standing to undermine both wellbeing and the transition to a low carbon economy. Increasingly insecure employment conditions, inequality and cuts to secure public services are set to undermine well being. At the same time subsidies and tax breaks to the fossil fuel industries (such as the purported halving of the tax bill relating to developing new North Sea oilfields) will prop up the old, dirty economy, while a policy environment for renewable energy that is confused and fails to provide a stable investment environment, is an obstacle to transition to a clean, modern economy.
Dhaval Joshi, chief strategist at BCA Research
The UK economy’s peak growth rate in this cycle is probably behind us. The main reason is that the housing market is losing momentum in response to tightening (macro-prudential) lending standards. But if decent pace of growth means close to the trend rate of 1.5-2 per cent, then yes, that is possible — as the recent decline in energy and food prices will provide a welcome tailwind to consumer spending power.
Gary Styles, director, GPS Economics
It seems likely the UK economy will slow significantly during 2015 in response to a weak world and European economic background. In addition, domestic demand looks likely to be limited by subdued investment growth and substantially reduced levels of government spending.
Sir Christopher Pissarides, regius professor of economics, LSE
Yes. The UK economy has adjusted to the debt reduction programme and I expect both consumer spending and investment to rise in 2015. The problems of the eurozone will hold back growth a little and if the Chancellor pushes with his plans to reduce spending growth would be negatively affected but I do not expect the spending reduction to happen in 2015.
Simon Kirby, economist NIESR
I expect it to. Consumer spending growth is expected to continue to expand at a reasonable pace, supported by rising real consumer wages rather than further declines in the average propensity to save. This view underpinned the forecast published at the start of November. Since this forecast was published the oil price has fallen by an additional $30, reinforcing both these drivers of growth next year. There are downside risks that could easily derail the UK recovery. Not least, the obvious one of a rapid deterioration in the situation in the Euro Area.
Samuel Tombs, senior UK economist, Capital Economics
While the global environment is likely to remain challenging, burgeoning domestic demand should ensure that the UK’s recovery maintains its strong pace in 2015. With pay growth on an improving trend and inflation set to ease to its lowest rate since the turn of the century, 2015 should see punchy growth in consumer spending. Meanwhile, the health of corporate balance sheets and the low level of interest rates indicates that growth in investment is likely to remain strong.
Jonathan Portes, director, National Institute of Economic and Social Research
The central expectation is that it will, if by decent is meant 2-3 per cent. That would represent trend growth but little catch up from the very large fall relative to trend between 2008 and 2012. That per capita GDP is still below 2008 levels 7 years on and 2 years into “recovery” is historically unprecedented
The key upside risk is the oil price fall. The key downside risks are the euro area and, domestically, persistent weakness in productivity growth relative to the pre 20088 trend.
Andrew Smith, economist
Yes, “decent” — around its long-term 2-2½ per cent trend — but still disappointing compared to previous recoveries given the absence of a stronger rebound and catch-up of “lost” output. The mix of growth will also leave something to be desired with household spending underpinned by (slowly) recovering real incomes but export markets lacklustre. But at the end of the day it’s an election year — although further fiscal tightening is promised, it is unlikely to bite until 2016 onwards.
Andrew Sentance, PwC and former MPC member
Yes, I believe that the UK can achieve growth of around 2.5 per cent in 2015, even though recent figures for 2014 have been revised down a bit. That is very decent growth in the New Normal world we are now experiencing in the West.
My reasons for expecting the UK to continue at a reasonably decent growth rate are: (1) A boost to our traditional export markets in US & Europe from lower oil prices; (2) The UK’s good supply side fundamentals relative to other European economies, particularly in terms of labour market flexibility; and (3) The fact we are still benefiting from a long period of monetary stimulus through low interest rates and QE and the process of withdrawing that has yet to start. Uncertainty about political developments casts a cloud over 2015 prospects, however. Prolonged political instability after the 2015 Election could be a dampener on growth.
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