9th May 2014
Influential think-tank the National Institute of Economic and Social Research (NIESR) has upped its growth forecast for the UK economy taking the nation back to pre-crisis levels writes Philip Scott.
The organisation now expects Britain’s gross domestic product (GDP) to grow by 2.9% in 2014, 0.4% higher than its February estimate. It has also lifted its growth forecasts for 2015 through to 2017 to about 2.4%.
The NIESR say that after only marginal expansion in 2012, economic growth has since accelerated rapidly, and is now running at around 3% year-on-year
Jack Meaning, an economist at the group says: “This means that GDP will exceed its previous peak in 2008 in the next few months.”
Despite the overall bullish outlook the NIESR pointed out that per capita GDP still remains well below its previous high, and will not exceed it before 2017.
Meaning added: “Similarly, while we expect real wages to grow this year, they are currently about 6% below their 2009 level, and we do not expect them to make up that lost ground until 2018 or so.
“The unemployment rate has fallen by 1 percentage point in the past year, and we expect it to drop to close to 6% from 2015.”
The report also highlighted that even the return of GDP growth, however, has not yet resulted in significant productivity increases.
“This matters in the short run, since without any improvement in productivity, robust economic growth will see spare capacity absorbed relatively quickly; it matters even more for the medium to long run since ultimately productivity is the main, if not the only, driver of real wages and overall prosperity,” says Meaning.
Amidst the upbeat news the NIESR says that considerable uncertainty surrounds monetary policy on several dimensions: the path of interest rate rises, where market expectations remain for a rate rise in early 2015; the new equilibrium level, which the Bank has said is likely to be materially below 5%; and the exit strategy for quantitative easing, in particular whether this is used as an active policy tool.
The NIESR’s report follows the latest economic predictions from the Organisation for Economic Co-operation and Development (OECD), which said earlier this week that it expects Britain to grow by 3.2% in 2014, a hefty rise from its previous 2.4% forecast.
The international body however urged that while it expects the global economy to strengthen over the coming two years urgent action is still required to further reduce unemployment and address other legacies from the crisis. As such the OECD lowered its overall global economic growth estimate for 2014, by 0.2% to 3.4%.