In its latest economic forecast, NIESR forecast that the economy would grow by 2.5% this year, down 0.4 percentage points from its forecast in February, following an expansion of 0.3% announced in the Office for National Statistics’ preliminary growth estimate for the first quarter of 2015 last week. This is down from 0.6% in the fourth quarter of 2014, and below market expectations, following a fall in construction output.
As a result, NIESR’s economic review said this was enough to lower the forecast for 2015 as a whole.
However, the lower growth rate was likely to be a ‘temporary deceleration’, the think-tank stated.
‘We expect growth to rebound through the remainder of this year. This will be driven largely by consumer spending, supported by the positive terms of trade effect from the sharp fall in oil prices,’ NIESR said in a statement.
‘We continue to expect growth of 2.5% per annum, which should gradually absorb the economy’s spare capacity.’
This projection is based on an assumption that the government in place following tomorrow’s general election will stick to the fiscal plans set out in Budget 2015. However, in practice, any future government is likely to pursue a somewhat looser fiscal policy,’ the think-tank said.
‘As our earlier work shows, this would lead to slightly higher growth and employment for the next few years, combined with slightly higher short-term interest rates and a slower rate of reduction in the deficit and debt to GDP ratio – relatively modest effects compared to other uncertainties highlighted above.’
The report also forecast that unemployment would continue to fall from its current level of 5.6% to about 5.25% by the end of the year, and that monetary policy to begin tightening in the first quarter of 2016 as temporary oil price and exchange rate effects dissipate.
