Thursday, January 9, 2014

UK economy forecasts for 2014

After faltering for several years, the UK economy shows signs of real recovery, with rising spending, investment, exports and even manufacturing growth. At the start of 2014, there seems to be a virtuous circle of falling unemployment, falling inflation, and rising GDP.

After one of the longest and deepest recessions on record, these signs of economic growth are definitely welcome, yet it is far from a return to normality. Real GDP is still 2% below its 2008 peak, and the economy is being propped up by zero interest rates, quantitative easing and a strong housing market. Stagnant wages and poor productivity growth have led to one of the most prolonged periods of declining living standards in memory. Although there is economic recovery, there is still a fear that the recovery is unbalanced, and that the UK economy could be derailed by problems in the Eurozone and future government austerity measures.

I have produced an in depth look of the UK economy in 2014 on my other blog.

Quick forecasts for 2014

  • Economic growth 2.5% (BBC link)
  • CPI Inflation - 2.4% ( - average of forecasts)
  • Unemployment - 7%
  • Current account deficit - £ - 48bn
  • PSNB - £ 88bn
  • House prices - 8% (Rightmove) IHS Global Insight (8%)
  • Interest rates - 0.5%  (on hold whilst unemployment is above 7%) PWC
  • Average earnings - real average earnings expected to decline for 6th year according to PWC

Reasons to be optimistic in 2014

  • There are strong signs of economic growth, with the possibility of growth rates returning to the UK's long run trend rate of 2.5%. This will cause a virtuous circle of higher investment and spending.
  • Signs of recovery in manufacturing and exports, give the hope of a more balanced economy
  • The UK economy has signs of flexibility to prevent rising unemployment we are seeing on the continent.

Reasons to be pessimistic in 2014

  • The economy is still weak and requires propping up with ultra loose monetary policy
  • The EU economy is still very fragile and could cause damage to the UK economy in 2014.
  • Elements of the recovery suggest it may not be sustainable, especially the mini housing boom, and the widening trade deficit
  • Prospects of more austerity in 2014 could derail the recovery before it is strong enough.

No comments: