19 Feb 2015
UK growth to surprise to the upside in 2015 and 2016 – BAML
FXStreet (Barcelona) - According BofA-Merrill Lynch, UK growth might register a print of 3.0% in 2015 and 2016, much above the consensus expectations at 2.7% and 2.5% respectively, viewing an expected improvement in nominal wage growth and decline in oil prices to support the growth in UK.
Key Quotes
“Looking forward, we expect the UK economy to grow by 3.0% in both 2015 and 2016. This is significantly above the current consensus forecast of 2.7% and 2.5%, respectively.”
“In part, our relative optimism reflects our view that the ongoing recovery of the UK’s banking system and credit supply will continue to support the revival in economic activity.”
“In addition to this, however, a separate factor underlying our optimism for the near-term growth outlook is our belief that a gradual improvement in nominal wage growth, together with the decline in global energy prices in the past eight months, will provide a significant boost to household real income this year.”
“In the short term, we expect the rise in wage growth to be driven by a tightening in the labour market. However, in the medium term, we expect stronger wage growth to be supported by an improvement in labour productivity growth (a development that would offset the impact of higher wage growth on unit labour costs).”
“Our forecast implies that productivity growth will rise gradually from an average rate of +0.0% in 2014 to 2.1% in 2017 (close to the long-term average of 2.2%).”
“Oil prices have fallen by close to 50% in the past eight months, a development that has already contributed to much lower inflation. In time, we estimate that lower oil prices will boost the level of GDP by 1-1½% over a period of two years”
Key Quotes
“Looking forward, we expect the UK economy to grow by 3.0% in both 2015 and 2016. This is significantly above the current consensus forecast of 2.7% and 2.5%, respectively.”
“In part, our relative optimism reflects our view that the ongoing recovery of the UK’s banking system and credit supply will continue to support the revival in economic activity.”
“In addition to this, however, a separate factor underlying our optimism for the near-term growth outlook is our belief that a gradual improvement in nominal wage growth, together with the decline in global energy prices in the past eight months, will provide a significant boost to household real income this year.”
“In the short term, we expect the rise in wage growth to be driven by a tightening in the labour market. However, in the medium term, we expect stronger wage growth to be supported by an improvement in labour productivity growth (a development that would offset the impact of higher wage growth on unit labour costs).”
“Our forecast implies that productivity growth will rise gradually from an average rate of +0.0% in 2014 to 2.1% in 2017 (close to the long-term average of 2.2%).”
“Oil prices have fallen by close to 50% in the past eight months, a development that has already contributed to much lower inflation. In time, we estimate that lower oil prices will boost the level of GDP by 1-1½% over a period of two years”