Economists now see UK inflation falling a tad quicker

Date: Thursday 19 Jan 2012

Economists have slightly refined their forecasts for the United Kingdom’s economic performance in 2012.

Seven forecasters are now predicting a contraction in activity levels this year, compared to only four last month; with the most pessimistic expecting the economy to shrink by 1.3%, a Reuters poll of economists shows.

In greater detail, the median forecast now assigns a 50% probability to a contraction in gross domestic product (GDP). Growth in the British economy is thought to have fallen by a tenth of a percentage point in the final three months of 2011, to be followed by a similar drop in output in the current quarter.

Due to the above, the Bank of England (BoE) is now expected to keep interest rates on hold at 0.5% until at least July 2013.

Furthermore, the central bank is seen announcing another £50bn instalment of asset purchases, probably in February. It is now estimated that the final amount of such operations will eventually reach £350bn.

To date the BoE ha employed £275bn in its asset repurchase programme.

The ‘silver lining’ in the above forecasts may lie in the fact that the consensus now anticipates that inflation, as measured by the consumer price index (CPI), will hit the Bank’s 2.0% target a full three months sooner than previously expected, in quarter four of 2012.

Lastly, unemployment is being called to peak at the end of this year, at 8.9%, versus the 8.4% rate seen in November.

AB

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