The UK’s prospects look good, and the Eurozone is improving
In this perspective Ruth Lea, economic adviser to the Arbuthnot Banking Group, includes discussion of the Bank’s latest forecasts, the Eurozone’s GDP data for 2014 Q4 and the commission’s latest forecasts.
The main points are:
– The Bank’s latest forecasts were bullish, forecasting 2.9% GDP growth for both 2015 and 2016. Whilst inflation may turn negative in spring, the Bank expects CPI inflation to be at the 2% target within two years. Interest rate increases are expected, by implication, to be gradual and limited. The market expects the first Bank Rate increase in 12-15 months’ time.
– Ahead of the Budget, due on 18 March, the IFS’s latest Green Budget implied more austerity to come.
– There has been little progress so far in negotiating a compromise between Greece and the rest of the Eurozone vis-à-vis Greece’s austerity programme.
– Eurozone GDP rose by 0.3% in 2014Q4, to be 0.9% higher than a year earlier. Growth was also 0.9% in the year 2014.
– Eurozone growth in 2014Q4 was driven by Germany (0.7% increase). Spain and the Netherlands are both recovering well, but the French economy increased by a feeble 0.1% in 2014Q4, whilst Italy’s GDP was flat.
– The Commission’s latest forecast had an optimistic tone. Eurozone growth was projected to be 1.3% (2015), rising to 1.9% (2016). Factors behind the improved outlook included the very accommodative monetary policy (including the ECB’s QE), a weaker euro and lower oil prices.
Ruth Lea said: “Whilst the Bank’s latest Inflation Report contained few surprises, its overall assessment confirmed that the UK’s prospects look good. The Eurozone, or at least most countries in the Eurozone, seem to have put recession behind them and have the necessary momentum to grow in 2015. Accommodative monetary policies and lower oil prices help both the UK and the Eurozone.”
