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UK economic growth to remain stable: NIESR

Xinhua, February 4, 2016 Adjust font size:

The UK economy is expected to grow by 2.3 percent this year, and 2.7 percent next year, according to a forecast released Wednesday.

The National Institute of Economic and Social Research (NIESR) forecast in its winter quarterly economic briefing that despite financial market turbulence since the start of this year, growth in the UK's gross domestic product (GDP) would remain the same as forecast in the institute's last quarterly economic briefing in November.

In addition to the effects of financial market turbulence, the UK economy had also experienced negative effects from a slowdown in export growth, largely a result of weaker demand from emerging markets.

However, these negative factors were offset by an acceleration in domestic demand, itself a result of the decline in global oil prices and a slight loosening of government fiscal policy which have supported consumer spending.

However, continued commodity price falls, the depreciation of the British pound, and weaker-than-expected data results led to a prediction of softening consumer prices growth in 2016 of just 0.3 percentage points, an indication that inflationary pressures throughout the year are likely to remain subdued and that consumer price inflation is likely to remain well below the 2.0-percent target set by the Bank of England (BoE).

Simon Kirby, senior research fellow at NIESR, told journalists at a press conference, "Our forecast is broadly unchanged from three months ago. That is somewhat surprising given our downward revision of global economic growth (to 3.2 percent for 2016, down from a 3.4 percent forecast in November), clear concerns and gloom and pessimism stalking emerging markets, all this must have an impact on a small, open economy like the UK -- and that is certainly the case."

"There are a number of offsetting factors that have happened over the last three months that have led us to have no decrease in our forecast of economic growth for this year and an increase of 0.1 percentage point for 2017 and 2018."

Influences on the forecast which had changed since November included how monetary policy expectations changed in the UK and overseas, with the BoE indicating an interest rate rise was not imminent, and the U.S. Federal Reserve having raised its interest rate, said Kirby.

Kirby said the forecast of when the BoE would raise interest rates had now been pushed back to the second half of 2016, a forecast which could be affected by the as-yet-unknown date for the UK referendum on EU membership, which would likely result in the BoE delaying a rate rise until after the vote.

In addition, oil prices are now significantly lower than was expected in November, and that will feed through to the economy with a 0.4-percent boost in GDP over the coming year, said Kirby.

However, Kirby said it was not expected that "consumers would go out and spend that significant increase in purchasing power that is coming about from the impact of lower oil prices."

As a result, the forecast for CPI had been "significantly revised down," to 0.3 percent this year and 1.3 percent in 2017. Endit