-Peter Spencer, chief economic advisor to the EY ITEM Club
The Bank of England is predicted to start tightening its monetary policy as late as in the three months through September of 2016, according to EY ITEM Club's latest forecast for the UK economy. That is two quarters later than predicted earlier. The subsequent normalization of the monetary policy is anticipated to be slow. EY ITEM Club expects the base interest rate would climb to 1% by the end of 2016, and 1.75% the year after. The benchmark rate is unlikely to move above 3% until the fiscal adjustment is finally accomplished in 2019, EY ITEM Club's forecast shows. EY's report expressed a rather conservative view on the rate path and came just a few days after BoE Governor Mark Carney said the decision on the timing of policy normalization should come at the turn of this year, while the path of UK policy normalization that comes afterwards is not pre-determined nor linear.
The EY forecast predicts UK economic growth to reach 2.7% for 2015 and 2016, before it slows to 2.4% in 2017 and 2018. Much of the upward momentum would come from solid consumer spending this year, while inflation would remain significantly weak. The forecast sees consumer spending soaring 3.2% this year, and another 2.5% in 2016, before falling to 2% a year from 2017-2019.
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