Prospects for the UK Economy

Abstract

GDP growth in 2006 is estimated to have been 2.8 per cent per annum. This rate of growth is above our estimates of the trend rate of growth in the UK. On a quarterly basis the latest estimates suggest that growth above the trend rate occurred in the first half of 2006, with both quarters' growth rates at 0.8 per cent (see figure 1). The second half of the year saw quarterly growth rates at around the trend rate of 0.6 to 0.7 per cent. NIESR's estimate of monthly GDP implied that quarterly growth in the first quarter of this year was somewhat lower at 0.5 per cent because of a weak January. After this poor quarterly performance we expect an increase in economic growth due to household and government demand. Overall, this suggests a downward revision to our January forecast of 0.1 percentage points, although this is of little economic importance. We continue to expect the economy to moderate over the next three years. Our forecast is for GDP to grow by 2.7 per cent per annum this year, slowing to 2.6 and 2.4 per cent per annum in 2008 and 2009 respectively.