Diverging forecasts on inflation and GDP from leading economists point to uncertain times for the UK

 
Jasper Jolly
Twin Bath
Economists have wildly different views on what the UK economy has in store (Source: Getty)

Following a year in which British people have allegedly “had enough of experts” – or should that be “soothsayers and astrologers”? – it is a brave economist who will venture a guess at where we will be in 12 months' time.

But that is what three prominent economists have done for the Economic Research Council.

Annual inflation could come in anywhere from 1.2 per cent to 4.1 per cent, according to wildly varying forecasts from Paul Ormerod, Dr Graham Gudgin, and Vicky Pryce.

Meanwhile, the UK’s GDP growth in the first quarter of 2017 could range from 0.1 per cent to 0.6 per cent.

The diverging forecasts underline the uncertainty around the process of leaving the EU – and even the uncertainty about how much uncertainty there will actually be.

There’s little relief either for the UK's central bank, which could be in line for a cumulative interest rate rise of one percentage point in the next year – or was that just 0.05 percentage points?

“Economic forecasting is a hazardous business,” said Andrew Sentance, senior economic adviser at PwC. Quite. Here’s what the three economists had to say.

Vicky Pryce: board member at the Centre for Economics and Business Research

  • The economy has done “better than many people expected” after Brexit, but quarterly GDP growth is still set to fall as low as 0.1 per cent in the second quarter of 2017.

  • Inflation is going to rise in line with the Bank of England’s predictions to 2.5 per cent in the first half of the year.

  • Unemployment is going to rise to 5.2 per cent from 4.8 per cent today.

  • And investors will flee to safe havens, with gold rising 70 per cent to $1950 per troy ounce.

“Worries about the future will probably not be resolved through the year and by the end of 2017 it’s likely we will still not have a clear idea about where we might be going. I’m actually quite pessimistic about the year after too.”

Dr Graham Gudgin: research associate at the Centre For Business Research at the University of Cambridge

  • A rocky road in 2017 will lead to anaemic GDP growth of 0.2 per cent in the third quarter.

  • Inflation is going to rocket to 4.1 per cent by the end of the third quarter.

  • But it’s not all bad news. With unemployment holding steady near capacity, workers will be able to push wages up by 3.2 per cent by the third quarter.

  • And the Bank of England will be forced to tighten drastically – to 1.25 per cent interest rates – to contain inflation.

“2017 will be probably the most uncertain, difficult to forecast year we’ve ever had. Our judgement is that companies may delay up to one third of new investment, and if they do GDP growth will come in at about 1.5 per cent in 2017– not good, but not terrible.”

Paul Ormerod: partner of Volterra Partners and a visiting professor in the Centre for Decision Making at University College London (UCL)

  • GDP will confound anti-Brexit campaigners with solid growth of 0.6 per cent in the first two quarters of 2017.

  • Inflation will barely rise above current levels to reach a high of 1.3 per cent.

  • But neither will earnings growth, set to decline to 1.7 per cent in the third quarter.

“None of the short-term projections of ‘Project Fear’ has happened. Looking forward to 2017 I’m reasonably optimistic. I’m not predicting a year of economic boom, but predicting a fairly normal year of growth.”

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