Economists have largely backed the International Monetary Fund’s (IMF) positive view on the UK economy, which even suggested the country’s domestic economy was “leaving the crisis behind”.
The UK is currently the fastest growing economy among the G7 group of developed nations, experiencing particular strength in its housing market. The IMF said it expected the UK economy to grow 3.2 per cent this year and 2.7 per cent in 2015 – figures unchanged from its previous estimate in July.
Simon Ward, chief economist at Henderson Global Investors, said he had been “relatively optimistic” on the UK economy and continued to be so.
“Growth will be pretty good in the next 12 months or so, which is a view based on monetary trends,” he said.
“One of the things I noticed 18 months ago was that the narrow M1 money supply was growing much more rapidly, which suggests better economic growth.”
The M1 measure looks at the amount of money in current accounts and the amount being held in the form of notes – money that is likely to be spent rather than saved.
The coalition government has taken credit for this growth through its austerity measures, but Mr Ward said it was “questionable” whether the UK had experienced austerity in the past couple of years.
“They were pretty tough early on in their term but after the Vat rise in 2011 I think they have slowed down,” he said.
“That has been reflected in the fact that the deficit has not improved as much as expected given the pick-up in the economy.”
Alan Clarke, UK and eurozone economist at Scotiabank, said he expected 3 per cent growth this year, 2.5 per cent next year and 2 per cent the year after that, numbers he claimed European Central Bank president Mario Draghi would “cut his arm off for”.
“Growth in the UK will not be as good, as it has been artificially boosted by the housing market but I do think it will continue to grow above trend,” he said.
But the economist warned that some sentiment indicators were starting to weaken and that trade, particularly with Europe, was not contributing much to growth.
“But the monetary policy turbo boost button is still being pressed and while rates might rise it will not be slamming the brakes on,” he said.
There has, however, been some concern about the lacklustre pace of wage growth, which could impact consumption if the trend persists.
Mr Clarke acknowledged this and stated he would rather have wage inflation picking up rather than the housing market being the crutch for the economy.
David Page, senior economist at Axa Investment Managers, said his forecasts for UK growth were in line with the IMF’s.
He expected the labour market to tighten and thought this would prompt faster wage growth during the January-April period next year when many pay rises are announced.
“This is likely to see unit labour costs begin to rise and encourage the Bank of England’s Monetary Policy Committee to embark on the first tentative increases in what we expect to be a very gradual tightening cycle,” he said.
“We forecast the Bank rate to close 2015 at 1 per cent.”
Mr Page added he had pushed back his expectations for the first rate rise in the UK to May instead of February next year.
