UK economy forecast to grow by 2.8% in 2015

According to an EY Item Club report, low inflation and eurozone growth is set to help the British economy grow by 2.8% this year.

The report said that low inflation, in addition to higher employment and lower oil prices, will give the UK economy a boost.

Peter Spencer, Item Club chief economic adviser, noted that financial markets are prepared for Greek problems that could occur down the road.

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The UK economy is set to expand by 2.8% this year and 3% in 2016, according to Item Club.

Spencer said that potential problems include an EU referendum and a weak government.

The forecast is 0.1% lower than what the Item Club had previously predicted, of 2.9% expansion, partly due to weaker official fourth-quarter GDP figures than expected.

The UK economy is forecast to grow by 3% in 2016, up from the Item Club’s previous forecast of 2.9%.

The forecast noted a boost in consumer confidence because of improvements in employment and inflation at near-zero.

UK exports are expected to increase by 5.9% this year and 4.9% next year.

Mr Spencer said:

“The economy is taking the general election in its stride as ‘noflation’ trumps politics. The eurozone recovery is bedding in and completes the positive UK growth picture that we anticipate for 2015 and 2016.

“This is a mirror image of what we saw in 2010-12, when unemployment and inflation were high and Europe was in the doldrums.

“If the strength of the headwinds that held back the economy during the first years of the coalition is anything to go by, the tailwinds enjoyed by a new administration post 7 May should be strong enough to outweigh the effects of any political uncertainty.”

He added:

“However, it’s not all plain sailing and possible risks around a weak government and an EU referendum remain.

“In Europe, the Greek tragedy has yet to reach a denouement, although European banks and investors seem prepared for a disorderly outcome.

“But worries about Ukraine and Russia have eased and we are confident that the UK economy would not falter from any of these shocks.”