Press Release: NIESR's Prospects for the UK economy
National Institute Economic Review No. 229 August 2014
EMBARGO 00.01 hours Tuesday 5 August
NIESR’s Prospects for the UK economy
- After growing by 3 per cent in 2014, the economy will grow by 2.3 per cent in 2015.
- Unemployment will drop below 6 per cent later this year.
- CPI inflation will be close to target this year and next; we expect interest rates to begin to rise gradually early next year.
The economic recovery has become entrenched. Growth has been ½ per cent or more per quarter for six consecutive quarters, nearly twice the rate of the 2010–12 periods. The UK economy has finally recovered its pre-crisis size just over six years after the onset of the downturn. Yet this is largely symbolic; GDP is still significantly below what would have been expected from the pre-crisis productivity trend, a deviation unprecedented in recent economic history. Per capita GDP is still more than 4.5 per cent below its pre-recession level, and this level will not be recovered until 2017.
The labour market continues to perform very strongly. Total employment is more than 4 per cent higher than it was at the start of 2008, and the employment rate has returned to its 2005 peak. We remain optimistic about further job creation and expect unemployment to fall below 6 per cent later this year, and real wages to begin to rise gradually.
The productivity performance, therefore, remains abysmal. With output per hour worked still around 4.5 per cent below the pre-crisis peak (2007Q4), we expect pre-crisis productivity levels to be regained only in the latter half of 2017– although, given the continuing puzzle about the causes of poor productivity performance, large uncertainties remain.
The main near-term concern on the domestic side is the buoyancy of the housing market and the associated growth in mortgage lending. Policymakers have adopted macropudential tools as the first response, but it is unclear what effect, if any, these interventions will have on the UK housing market. We expect house price inflation to moderate in future years as monetary policy gradually tightens, with the first Bank Rate rise occurring in early 2015.
On the basis of the government’s announced spending envelopes, we continue to expect the public sector accounts to return to surplus in 2018–19, for the first time since 2000–1. However, it is important to note that after 2015–16 there are no detailed plans underlying these figures.
Finally, September of this year will see the ONS incorporate major changes to the National Accounts. These will substantially raise the recorded level of UK GDP, while dramatically changing our view of household and corporate sector saving, and potentially changing our view of economic developments over the past few years.
The forecast for the UK economy is published in the National Institute Economic Review, no. 229, August 2014.
For a full copy of the UK economic forecast or to arrange interviews, please contact the NIESR Press Office: Brooke Hollingshead on +44 (0) 20 7654 1923/ B.Hollingshead [at] niesr.ac.uk
To discuss the forecast or for interviews, please contact:
Simon Kirby on +44 (0) 20 7654 1916/ s.kirby [at] niesr.ac.uk, or
Jonathan Portes on +44 (0) 7766 441148 / j.portes [at] niesr.ac.uk, or
Jack Meaning on +44 (0) 20 7654 1944/ j.meaning [at] niesr.ac.uk
The National Institute Economic Review is the quarterly journal of the National Institute of Economic and Social Research (NIESR). Published in February, May, August and November, it is available from Sage Publications Ltd (http://ner.sagepub.com./) at subscription [at] sagepub.co.uk.
NIESR aims to promote, through quantitative and qualitative research, a deeper understanding of the interaction of economic and social forces that affect people's lives, and the ways in which policies can improve them.
Further details of NIESR’s activities can be seen on http://www.niesr.ac.uk or by contacting: enquiries [at] niesr.ac.uk or the Switchboard on +44 (0) 20 7222 7665.
For further information:
National Institute of Economic and Social Research
2 Dean Trench Street
London, SW1P 3HE