Britain seen heading for fastest GDP growth since 2007

The U.K. economy is heading for its fastest expansion since the onset of the financial crisis, economists said as they upgraded their forecasts for growth through 2015.

Gross domestic product will rise 1.3% this year and 2% in 2014, compared with predictions of 1% and 1.7% previously, according to the median of 48 economists in a monthly survey by Bloomberg News. That pace of growth for next year would be the fastest since 2007, before the start of a slump that has left output more than 3% below its peak.

For Bank of England Governor Mark Carney, the question is how quickly this recovery can lower the country’s unemployment rate after he introduced forward guidance last month and linked the jobless rate directly to the policy stance. That measure hasn’t yet been effective, according to more than two thirds of economists in a separate survey.

“The consensus forecast has moved a long way very, very quickly,” said Jens Larsen, an economist at RBC Capital Markets in London and a former BOE official. “If you get a very powerful recovery, the arguments for guidance, for the extended period of low rates, just look so much weaker. It’s a bit of a communication challenge.”

The economists in the Bloomberg survey see GDP growth accelerating to 2.4% in 2015. Consumer spending will rise 1.6% this year and in 2014, while exports will increase 1.8% and 4.7%.

Guidance Framework

Under its so-called forward guidance, the nine-member Monetary Policy Committee has said it won’t consider raising the benchmark interest rate from a record-low 0.5% until unemployment falls to 7%, which they don’t see happening until late 2016.

That projection is being challenged by recent data, and economists are more optimistic, with 19 of 31 forecasting that it will fall below the threshold before 2016.

Data this week showed the unemployment rate fell to 7.7% in the three months through July from 7.8% in the second quarter. The labor-market report also showed that jobless claims in the past two months have fallen by the most since 1997.

Government figures today showed construction output, which accounts for 6.3% of the economy, climbed 2.2% in July. In the second quarter, new building orders surged almost 20% from the previous three months, boosted by demand for homes as well as wind turbines and solar farms. Overall housing orders between April and June were the strongest since the fourth quarter of 2007.

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