The UK economy looks set to stage a modest recovery in 2006, with the latest forecasts from the National Institute Economic and Social Research (NIESR) projecting gross domestic product (GDP) to grow by 2.3% in 2006, rising to 2.7% in 2007.
Business investment is forecast to rise by 3.6% in 2006, with an increase of 4.3% in 2007, while exports are projected to jump by 4.7% in 2006, enjoying a strong performance in 2007, with a projected rise of 6% in 2007.
Consumer price inflation is expected to pick up to 2.2% by the final quarter of 2006, abating to 1.9% in late 2007. Inflationary pressures will be contained by a rise in the unemployment rate to 5.4% by the end of 2007, helping to constrain earnings growth.
House prices are still above their underlying value in the order of 20%, with the NIESR claiming one reason for the long-term strength in real house prices being the favourable tax treatment of owner-occupied housing.
The Government looks likely to continue to run an overall budget of around 3% of GDP between 2005-6 and 2007-8, with the current budget deficit expected to narrow to £9 billion or 0.7% of GDP in 2006-7.
Forecast For UK Economy | ||
2006 | 2007 | |
GDP | 2.3 | 2.7 |
Business Investment | 3.6 | 4.3 |
Exports | 4.7 | 6 |
Consumer Price Inflation | 2.2 | 1.9 |
Source: NIESR, January, 2006 |