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.
The NIESR attributes the economic pick-up to domestic demand as investment, government consumption and household spending all strengthen. An improvement in net trade is expected to add impetus to the recovery, pushing GDP up in 2007 to 2.7%.
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 |
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