UK economy seen heading for fastest GDP growth since 2007 - Bloomberg

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(Bloomberg)

The U.K. economy is heading for its fastest expansion since the onset of the financial crisis, economists said as they upgraded their forecasts for growth through 2015.
Gross domestic product will rise 1.3 percent this year and 2 percent in 2014, compared with predictions of 1 percent and 1.7 percent previously, according to the median of 48 economists in a monthly survey by Bloomberg News.

That pace of growth for next year would be the fastest since 2007, before the start of a slump that has left output more than 3 percent below its peak.
For Bank of England Governor Mark Carney, the question is how quickly this recovery can lower the country’s unemployment rate after he introduced forward guidance last month and linked the jobless rate directly to the policy stance.

That measure hasn’t yet been effective, according to more than two thirds of economists in a separate survey.
“The consensus forecast has moved a long way very, very quickly,” said Jens Larsen, an economist at RBC Capital Markets in London and a former BOE official.

“If you get a very powerful recovery, the arguments for guidance, for the extended period of low rates, just look so much weaker. It’s a bit of a communication challenge.”
The economists in the Bloomberg survey see GDP growth accelerating to 2.4 percent in 2015.

Consumer spending will rise 1.6 percent this year and in 2014, while exports will increase 1.8 percent and 4.7 percent.
Guidance Framework
Bloomberg reports that under its so-called forward guidance, the nine-member Monetary Policy Committee has said it won’t consider raising the benchmark interest rate from a record-low 0.5 percent until unemployment falls to 7 percent, which they don’t see happening until late 2016.
That projection is being challenged by recent data, and economists are more optimistic, with 19 of 31 forecasting that it will fall below the threshold before 2016.
Data this week showed the unemployment rate fell to 7.7 percent in the three months through July from 7.8 percent in the second quarter.

The labor-market report also showed that jobless claims in the past two months have fallen by the most since 1997.
Government figures today showed construction output, which accounts for 6.3 percent of the economy, climbed 2.2 percent in July.

In the second quarter, new building orders surged almost 20 percent from the previous three months, boosted by demand for homes as well as wind turbines and solar farms. Overall housing orders between April and June were the strongest since the fourth quarter of 2007.
Difference of Opinion
BOE policy makers say productivity will pick up as the economy recovers, meaning companies will get more output from their existing workers, which will limit the pace of hiring.

Carney said yesterday that a difference of opinion between the central bank and other forecasters is “natural.”
“The market had a more positive view of the rate at which unemployment will come down and a more pessimistic view of productivity,” he said at a hearing of the Treasury Committee, a panel of lawmakers that scrutinizes the BOE.
Economists’ more positive outlook for the U.K. follows economic growth of 0.7 percent in the three months through June as well as a continued strengthening of services and manufacturing this quarter.
- Thisdaylive