23 May 2006, 15:52  OECD sees UK GDP gathering momentum, no change in interest rates

The OECD forecasts that economic growth in the UK will to gather momentum with GDP rising by 2.4 pct in 2006 and 2.9 pct in 2007, as investment picks up and consumption is buoyed by a modest recovery in the housing market Headline inflation, meanwhile, is projected to move slightly higher in the short term, due to the recent spike in domestic gas prices. However, inflation is seen falling back below the 2 pct CPI target the Bank of England is charged with keep beyond over a two-year horizon, it added The BoE's benchmark repo rate is predicted to stay put at 4.50 pct as the central bank waits to see how inflation will pan out over the medium term, it added "With monetary conditions probably close to neutral with respect to domestic demand at present, and only a small negative output gap, the BoE can afford to keep interest rates unchanged while waiting to see whether underlying inflation maintains its recent moderate path, or picks up as a result of higher wage inflation and spill-over from higher energy prices," the OECD said On the fiscal front, the general government deficit has now exceeded 3 pct of GDP for three years in a row, and is expected to narrow only very gradually through 2007, it said The OECD called for measures to achieve a more decisive reduction in the deficit "Reforming the disability benefit scheme and improving workforce skills should remain priorities in order to raise potential growth," it said The OECD said the risks to its projections for the UK are somewhat balanced "The uncertainties surrounding the strength of the housing market and the business investment cycle suggest a roughly balanced risk profile for GDP growth," it added The outlook for inflation, however, is trickier. There are several downside risks that could cause inflation to drop more rapidly below the target, it said "First, import price inflation could fall back more quickly than projected. Second, net immigration might remain at its current high level, boosting the labour force and further damping inflationary pressures," it said Additionally, the much feared spill-over from energy prices into wage pressures may not materialise, it added

© 1999-2022 Forex EuroClub
All rights reserved