UK economy will continue to grow despite global uncertainty, says report

Renewed concerns over a global slowdown are unlikely to derail Britain’s economy in 2016, a survey conducted by the National Institute of Economic and Social Research (NIESR) has revealed today.

The think-tank expects the economy to grow by 2.3 per cent this year, unchanged from its previous forecast which was made in November and picking up a bit of speed from growth of 2.2 per cent in 2015.

Inflation will rise to just 0.3 percent this year, it said, underscoring why the Bank of England is unlikely to raise interest rates any time soon.

But it also warns that George Osborne will fail to balance the books by the end of the decade as weaker tax receipts leave Britain facing another round of austerity.

Slightly faster interest rate rises beginning in the second half of this year are also expected to push up debt interest payments at a quicker pace than implied by markets, which are operating under the impression rate rises will be delayed until the second half of 2017.

The BoE may cut its growth forecast for Britain in 2016 in response to lower demand from emerging economies and other factors when it publishes its latest outlook on Thursday.

“A near-term slowdown in export growth, predominantly a result of weaker demand from emerging markets, is offset by an acceleration of domestic demand as falling oil prices and a marginal loosening of policy act to bolster consumer spending,” the think tank said in a statement.

“Growth accelerates again in 2017 as the improving external environment strengthens export demand.”

“A key judgment for our forecast is the timing and pace of monetary tightening,” the report added.

“We have pushed back the point at which we think the Monetary Policy Committee is most likely to begin raising bank rate to the second half of 2016, based on recent communications by committee members and the timing of the UK’s impending referendum on membership of the European Union.”