Published On: Tue, May 12th, 2015

Bank of England to update on UK economic prospects as NIESR says growth beat official estimate in last three months

Growth: The NIESR expects the UK economy to have expanded by 0.4 per cent over the past three months

We expect the slight softening of GDP growth experienced in the first quarter of this year to be temporary and forecast the UK economy will expand by 2.5 percent for the year as a whole,’ the NIESR said in a statement. The annual growth estimate was in line with a forecast made by NIESR earlier this month.

Bank of England Governor Mark Carney is expected to say the next move in interest rates – which have been frozen at their record low of 0.5 per cent since March 2009 – will be up despite inflation running at zero for two consecutive months.

The Bank’s policymakers have previously said they expected inflation to turn negative in the coming months, although economists now suggest that this might not be the case as the price of oil, the main drive in the fall in inflation, has rebounded recently.

Samuel Tombs, senior UK economist at consultancy Capital Economics, said this has improved the chances that inflation will not turn negative, or that it only does so for a month or two.

Howard Archer, of IHS Global Insight, said he expected policymakers to support the view that interest rates were most likely to start rising early on in 2016 and then increase gradually.

The Bank’s chief economist Andy Haldane recently floated the likelihood of a rate cut to try to stave off a damaging spiral of falling prices, though he seems to be a lone voice among policy-makers.

UK GDP fell to 0.3 per cent in the first three months of the year, after growing by 0.6 per cent in the last quarter of 2014, according to official preliminary figures released last month.

But NIESR predictions of a growth recovery were echoed by other official data released today that pointed to an improvement in the UK economy last month.

Britain’s industrial output rose 0.5 per cent in March, the strongest growth since September and by 0.1 per cent in the quarter, compared to the 0.1 per cent decline estimated last month by the Office for National Statistics.

Meanwhile, with the UK improving again, economic growth in the eurozone is set to continue to pick up, a separate report from a leading international think-tank said today, although there are also signs of a slowdown in the US and China – the two biggest economies in the world.

In its latest report, the Paris-based Organisation for Economic Co-operation and Development said that France and Italy, where growth has been sluggish over the past year, showed some positive momentum, although the situation in Greece continued to deteriorate.

The data, which is based on information available in March, seem to suggest that the European Central Bank’s €60billion-a-month quantitative easing programme is beginning to stimulate economic growth in the single currency area.

The report comes ahead of a raft of European GDP data due tomorrow and follows a warning from Greece’s finance minister that the debt-laden nation could run out of money in a couple of weeks, raising the prospect of a Greek debt default and the  country’s departure from the eurozone. The warning sent shares across Europe diving into the red today.

The OECD report also said growth momentum in the UK was ‘stable’, but warned of easing growth in the US, China, Canada, Brazil and Russia. 

It said growth in the world’s biggest economy was set to slow further after growing by just 0.2 per cent in the first quarter compared to a year earlier, although it added that the easing could be due to ‘transitory’ factors.

The OECD’s leading indicator for the US fell in each of the first three months of the year and now stands at 99.6, with a reading of below 100 indicating that the economy is set to grow at a slower pace than before.

‘Signs of easing growth momentum are emerging in the United States, although these may reflect transitory factors,’ the OECD said.

The think-tank said growth momentum in the UK was ‘stable’, but warned of easing growth in China, Canada, Brazil and Russia.

The OECD’s composite leading indicator for its 34 members fell to 100.1 in March from 100.2 in February, while the leading indicator for the eurozone was unchanged at 100.7.

Last month, the International Monetary Fund warned that while it expected the global economy to expand by 3.5 per cent this year, growth still remained ‘uneven’ and that there was more chance of negative than positive shocks.

Today’s OECD report seems to suggest a similar scenario, with acceleration in Europe that could however be offset by a slowdown in the US and China.

The IMF pegged its growth prediction for the UK for 2015 at 2.7 per cent, but its growth rate for 2016 was cut to 2.3 per cent from from 2.4 per cent. It also lowered its forecast for the US for teh year to 3.1 per cent from 3.6 per cent.

 

 

 

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