Goldman Sachs hikes UK growth forecasts

Goldman Sachs has upped its growth projections for the UK from its February forecast. The UK is now forecast to grow 2.3 per cent in 2014 up from two per cent, 2.5 per cent in 2015 up from 2.3 per cent and 2.7 per cent in 2016 up from the 2.6 per cent.

They forecasts that the Bank of England will keep interest rates at emergency lows of 0.5 per cent until mid 2016. If Goldman believes the Bank will keep to its forward guidance this implies that it expects unemployment will remain above seven per cent until the middle of 2016.

Goldman's outlook for the Europe area was still pessimistic expecting a total contraction of -0.4 per cent in 2013. However growth is expected to return in 2014 at 0.9 per cent. Goldman points to the situation in Spain and Italy as areas of concern and the possible deceleration of growth in Germany. A sharper contraction in the eurozone has been avoided through ECB policy.
The outlook for the US remains mediocre with growth projected to be below trend at 1.6 per cent in 2013, down from the 1.8 per cent projected in February. Growth is expected to rise in 2014 to 2.9 per cent. The report cites the sequester as a drag on US growth but projects increasing strength in the private sector and the continuing recovery in the housing market as cause for optimism.