ITEM Club revises up growth forecast to 2.9%

19 Jan 15
The UK economy is expected to grow by 2.9% this year, according to the EY ITEM Club – up by 0.5% compared with its previous forecast in October.

In its latest quarterly forecast, the EY ITEM Club, which predicts the UK’s growth prospects using the same model as the Treasury, said today that the UK economy looked ‘a lot brighter’ compared to three months ago, helped largely by the collapse in oil prices.

Peter Spencer, the ITEM Club’s chief economic advisor, said: ‘Not every economy will be a winner from oil prices collapsing, but the UK certainly is. We have described the previous weakness of commodity prices as a silver lining in the storm clouds gathering over the world economy.’

Oil prices are now down over 50% since last June, the report noted.

‘While it is not a game changer in terms of growth prospects, falling oil prices come just as the recovery was losing momentum and will move the game up to a higher level for a year or two,’ Spencer added.

The report went on to predict that inflation is expected to turn negative in the first half of 2015 and stay below 1% over the rest of the year. It added that inflation would likely rise to 1.5% in 2016, before reaching the 2% target in 2017.

The fall in inflation was likely to fuel an increase consumer spending that will drive growth in 2015, the EY ITEM Club predicted.

Income from wages and salaries are expected to increase by 3.5% in 2015 and real disposable incomes by 3.7%. The report said that the recovery in incomes has been driven by larger numbers of people entering work while earnings have been falling.

The EY ITEM Club said these developments should persuade the Monetary Policy Committee (MPC) to err on the side of caution and keep interest rate rises on hold until the first quarter of 2016.



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