Expert comments on the new ONS inflation figures
James Mitchell, Warwick Business School Forecasting System (WBSFS) has made the following statement on the latest inflation figures from the Office for National Statistics (ONS).
Professor James Mitchell said: “In the UK the most likely outcome is for annual GDP growth to continue at between 3 and 4% in 2015. Falling inflation can help an economy grow by pushing up real wages, thereby encouraging household consumption.
“But, as lower expectations of inflation could instead encourage consumers to defer expenditure until prices are lower in the future, and since lower inflation also raises the real cost of debt, the WBSFS emphasises the downside risks to economic growth. It estimates there to be about a one-in-four chance that GDP growth will be less than 2% in 2015.
“The forecasts by ONS support those made using the WBSFS. We suggest the low inflation observed by the ONS in December 2014 is likely to persist; with a probability of 42% inflation will remain below 1% through 2015.
“The WBSFS predicts that this low inflation will most probably be accompanied by robust economic growth in the UK in 2015. This contrasts the low inflation but also low growth outlook for the Euro Area.
“The Bank of England is likely to keep interest rates on hold while low inflation co-exists with robust growth prospects.”
