Wednesday, December 04, 2013

The recent surge in output in the UK has been noted by many commentators. Indeed, it seems quite remarkable.

The latest forecasts produced by my neural network model, using the most recently available data (up to September) suggest that a spike in output growth is likely - though the magnitude of the spike is moot - with the rate of growth falling back quickly to (much) more modest levels as we move into 2015.

Clearly much will depend on policy. Even though the output gap is still substantial, growth of the kind being predicted above is unlikely to last long without a build up of infationary pressure as workers seek to recover the lost ground of recent years. This could provoke an interest rate hike sooner rather than later - and that could bring output growth down sharply.