The ITEM (Independent Treasury Economic Model) club (supported by Ernst and Young) have issued their latest forecast for the UK economy. They conclude that growth in 2014 will accelerate to 2.7%, but caution that the recovery is very much led by consumer spending and that, until real wages rise, interest rates should be held at their current low level.
It would be hard to disagree with the ITEM club - at least as a short term forecast. Their predictions for the years beyond 2014 show the characteristic reversion to a steady state growth rate of around 2.5% that is characteristic of models of the type that they use - and recent experience suggests that we should be sceptical of that.
But the note of caution that is sounded here, suggesting that the recovery is fragile while it remains so heavily dependent on consumer spending. If growth does indeed accelerate to 2.7% this year, an outcome in 2015 of 2.4% (which is what the ITEM club is currently predicting) would be a rather better outcome than I would expect.
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