This was predominantly driven by growth in private services. Consumer spending is expected to contribute significantly to GDP growth in 2015, supported by improvements in purchasing power emanating from the sharp drop in global oil prices.
NIESR’s latest quarterly forecast projects GDP growth of 2.9% per annum in 2015 and 2.3% in 2016.
NIESR has also revised up its forecast for GDP growth in 2015 significantly, to almost 3%, due to the sharp fall in oil prices.
NIESR announced that it expects growth to moderate in 2016 and beyond, as the positive impact of the oil price shock dissipates and domestic demand growth softens. The outlook is consistent with economic recovery, and it expects economic growth to outpace growth in long-run capacity for a number of years.
The rate of inflation is forecast to average around 0.5% per annum in 2015, but there is considerable uncertainty, with a 1 in 10 probability that prices will fall this year. The pass-through from oil price and exchange rate developments to consumer prices is significantly disinflationary, but this is expected to be only temporary.
Just six months ago financial markets had expected the Monetary Policy Committee to introduce the first interest rate rise in time for February's Inflation Report. Financial markets have pushed back this expectation to the middle of 2016, exaggerating the shift in the policy stance.
NIESR now expect the first interest rate rise early next year, and unemployment to fall to about 5.25% by the end of the year.
