Morgan Stanley sees slightly quicker UK economic growth
The 7 May election will most likely see the established UK parties, Conservatives, Labour and Liberal Democrats, front-load austerity measures, weighing on growth prospects for the UK economy in 2016, resulting in a gradual path for interest rate hikes from the Bank of England throughout the rest of next year, Morgan Stanley said.
Nevertheless, higher employment and stronger domestic demand – thanks to lower oil prices - means that gross domestic product (GDP) would grow at a faster clip than previously forecast by the bank's research team.
GDP is now projected to expand at a 2.7% year-on-year pace in 2015, up from a previous estimate for growth of 2.5%.
“But, if the election delivers a minority government or a government dependent upon the anti-austerity SNP (on current polls, set to be the third-largest party), we would expect looser fiscal policy,” economists Jacob Nell, Melanie Baker and Jonathan Ashworth wrote in a research note e-mailed to clients on 12 April.
As the degree of slack in the economy diminishes and pushes pay growth higher the Monetary Policy Committee is seen first raising the Bank Rate in February 2016, continuing to gradually tighten thereafter - tighter fiscal policy is predicted to slow growth below trend.
Real disposable household income is set to expand to a 3% pace in 2015 and 1.7% in 2016, following an increase of 0.6% in 2014, according to Morgan Stanley’s forecasts.
That is expected to keep the current account deficit at 4.8% of GDP in 2016.
Consumer price inflation is seen rising to 1.5% in 2015 after a reading of 0.3% in 2015.