Is the EY Item Club right to predict that UK growth will significantly accelerate in 2015?

EY Item Club: UK economic growth could reach its fastest rate since 2008 this year (Source: Getty)

Mark Gregory, EY’s chief economist, says Yes

We believe growth will accelerate in 2015, largely due to income growth. The UK consumer has been lashed by rising fuel and food prices for so long, but is now emerging as the major beneficiary. Low inflation combined with cheaper commodity prices, as a result of falling food, fuel and energy costs, are expected to give consumers a real boost in 2015.

The recovery in consumer incomes had previously been driven by improving levels of employment, but individuals can look forward to a substantial increase in real earnings. According to the EY ITEM Club, income from wages and salaries will increase by 3.5 per cent in 2015 and real disposable incomes by 3.7 per cent.

At the same time, the forecast sees real household consumption increasing by 2.9 per cent this year. Reflecting these benefits, the EY ITEM Club’s Winter Forecast is now expecting GDP growth to accelerate to 2.9 per cent in 2015.

Adam Memon, head of economic research at the Centre for Policy Studies, says No

While there are plenty of reasons to be positive about UK growth in 2015, there are still significant risks to this optimistic picture. With the UK’s current account deficit now at 6 per cent of GDP, our economy is suffering from the stagnation in the Eurozone.

The inability of our major trading partners to revive their economies, combined with another bout of turbulence, could place downward pressure on UK exports. Furthermore, if productivity growth fails to recover as expected, then output, real wages and deficit reduction will all disappoint.

In addition, political uncertainty may exert a large negative influence on investment in two ways. First, an incoming Labour administration that campaigned against austerity could, when faced with the realities of office, quickly undergo a meltdown. Second, the promise of higher taxes on incomes and profits alongside new regulatory policies could place unwelcome costs on many businesses.

Related articles