HSBC raises Britain's economic growth expectation

HSBC Global Research on Tuesday positively changed its forecast of British economic growth in 2015 from 2.4 percent to 2.6 percent as it believes the drop in oil prices benefits the country's economy.

British growth slowed in the second half of 2014, and it looked as if it would slow further in the first half of 2015, as global economic uncertainty and political trouble within the country affected economic activity, said Simon Wells, chief UK economist at HSBC, in a report.

"While we still think uncertainty about the May 7 general election result and the possibility of a subsequent referendum on EU membership will be important, the collapse in the oil price has the potential to pump up growth," he said.

The first half of this year will see a "tug-of-war" between two factors, but on balance the British-led bank group is now more optimistic about this time period, he noted.

HSBC expects British inflation to trough at zero in March from 0.5 percent in December 2014, and it will provide a big boost to the real pay growth of Britons, which in turn supports household consumption, said Wells.

"Moreover, now that the UK is once again a net importer of oil, there is a terms of trade benefit," he said.

HSBC maintains its forecast for the first quarter of 2016 to be the first rise in British policy rates, as policy makers at the Bank of England are "most concerned" about low or negative inflation expectations becoming entrenched, he added.

Consequently, the bank expects the British pound's exchange rate against the U.S. dollar will drop to a ratio of 1:1.48 within the year and further to 1:1.45 next year. Endit