Monday, May 12, 2014

The CBI has revised upwards its forecast of GDP growth for the current year, to 3.0%. This prediction appears reasonable. The confederation now expects growth in 2015 to be 2.7%, and that may be optimistic.

A striking feature of the detailed aspects of the CBI forecast is that - like the EY ITEM Club - it signals a substantial growth in investment during the current year. While total business investment fell by 1% in 2013, the CBI expects it to grow by 8.3% this year and by a further 9.1% next year. With growth and confidence returning, a return to growth in investment would not, of course, be surprising. But the magnitude of these estimates is striking.

The growth we are now experiencing is, of course, welcome. There are, however, aspects of the economy's trajectory that look like bubbles. The housing market is one, and business investment may turn out to be another. Some observers have suggested that the Bank of England should look to raise interest rates sooner rather than later. In light of the considerable spatial disparities that are emerging (with London booming while the recovery is still nascent in peripheral regions), an interest rate hike would be premature in the absence of substantial support to the regions. A reduction of fiscal stimulus to the core region - particularly through housing market support - may, however, be timely.

Friday, May 09, 2014

Industrial production data were published earlier today, an event that always causes me some excitement because it means I can update the forecasts produced by my neural network model. Here they are. They continue to suggest that the current rapid recovery is set to continue, but that the rate of growth will become much more modest over the next two years. The recovery is good news, but we should not get carried away - it looks a lot like blipping, and we may need to get used to slower growth than we are currently experiencing.

Thursday, May 08, 2014

The latest index of house prices produced by Halifax reports an annual rate of growth of 8.7% across the UK. The rate is highest in Greater London, at 15.7%, but several other regions are now experiencing substantial increases in prices. These include the North West (12.7%), Northern Ireland (11.4%) and the West Midlands (9.6%). By way of contrast, price rises in the North have been very modest indeed (1.5%), and in Scotland prices have fallen by 1.4% over the past year. The recovery in the housing market does appear to be spreading at last, but it remains patchy.

Increases in prices in the South East have been modest relative to those in the capital - some 5.3%. Of course, prices are determined by a mix of demand and supply factors, and there is scope to raise supply in London itself.

Doing so is important - with such an uneven economic recovery, lagging regions would be ill-served by a premature hike in interest rates. Ensuring that the housing market is not constrained in areas where supply needs to expand is key to spreading the benefits of recovery to all.