UK: Risks remain tilted to the downside in 2016 – RBS

By FXStreet FXStreet (Delhi) – Ross Walker, Senior UK Economist at RBS, expects the UK GDP growth in 2016 (2.0%) and 2017 (2.1%) is set to remain at a sub-trend pace (2¼%-2½%), sub-City consensus (2.3% in 2016) and below the OBR’s projections (2.4% in 2016, 2.5% in 2017).

Key Quotes

“The UK’s fiscal position is also an under-appreciated disinflationary influence which the Governor chose to emphasise in his speech.

We continue to expect wage inflation (AWE) to undershoot BoE projections. Indeed, the risks around our own forecasts appear increasingly to the downside given that the current annual pay settlement season (January and April are the key months) is coinciding with very low headline inflation – again, something acknowledged more overtly by the Governor in his speech. We forecast AWE growth to be running at 3.5% y/y at end-2016 and 3.8% at end-2017 (BoE November Inflation Report at 3.75% & 4%).

The timing of the UK referendum on EU membership continues to present a complication for policymakers. To the extent that EU exit risks might damage business confidence, capex and hiring, it is hard to see the MPC raising rates ahead of the referendum (at least in the absence of a much stronger underlying economic performance). There …read more

Source:: FX Street