Experts warn that poor productivity is threatening UK growth

NIESR forecasters expect slow growth in the third quarter

 

Forecasters at the National Institute of Economic and Social Research (NIESR) have lowered their previous growth estimate for the British economy, which they now expect to slow in the third quarter.

NIESR said the economy would grow by 0.4 percent in the three months to September, down from a forecast of 0.8 percent they made in May. The current forecast is that:

  • The UK economy will grow by 2.5 per cent this year, and will remain close to this rate throughout the forecast period.
  • The recent increase in unemployment rate will be reversed in coming quarters.
  • CPI inflation will remain below target until the end of 2017.
  • The Bank of England will begin to raise rates in early 2016.
  • The key domestic unknown over the next few years remains the future path of productivity growth.

According to NIESR, the biggest domestic risk to the UK economy is the absence of meaningful productivity growth. Until this returns, ‘significant improvements in standards of living should not be expected’.

The rate of inflation is expected to remain around zero for the rest of this year. NIESR say that the absence of a rebound in oil prices, as well as the appreciation of sterling against a basket of currencies, weighs on their forecast for consumer price growth in the near term.

But overall, their outlook is fairly positive with the factors expected to be temporary:

“By 2017 we expect inflation to be more consistent with the Bank of England’s mandated target of 2 per cent per annum.”

Ruby Stockham is a staff writer at Left Foot Forward.

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