Predictions for the UK economy in 2014

Our other predictions for 2014:

  • Brazil is our favourite to win the FIFA World Cup in 2014. We think its world-class track record combines its home country advantage to give it the edge it takes to win the Cup.
  • We project the GDP of all but one of the G7 economies to rise back above their 2007 levels. Italy the only exception.
  • By the end of 2014, we expect that 22 economies around the world will still be smaller than in 2007. Of these, nine will be in the Eurozone.
  • We anticipate 13 economies will grow faster than China in 2014, including Bhutan, Gambia and Libya. Meanwhile, Sub-Saharan Africa will grow faster than global GDP (at market exchange rates) for the 14th year in a row.
  • The UK will remain the fastest growing major European economy in 2014*.
  • UK GDP growth is expected to be in the range of 2-3% in 2014, with a main scenario of 2.4%. The level of UK GDP is projected to rise back above pre-recession levels for the first time in Q4 2014.
  • We expect inflation to remain slightly above target, at 2.3% on average, in 2014. This would be the ninth successive year when inflation has been above its target rate, with the level of consumer prices in 2014 projected to be around one quarter higher than in 2005, when annual average inflation was last on target.
  • Real average earnings are expected to decline for the sixth consecutive year in 2014, although the gap between prices and earnings is expected to be the smallest since 2009, so the real wage squeeze will start to ease.
  • Continued real wage constraint will, however, support employment growth, pushing unemployment down to close to the MPC's 7% threshold by the end of 2014.
  • This is likely to restart the debate on monetary tightening, with a minority of MPC members expected to be voting for interest rate rises by late 2014 and the first actual rate rise expected during 2015 in our main scenario.
  • The UK budget deficit (excluding special factors) is expected to fall below £100 billion in 2014/15 for the first time since the recession.
  • In 2014 we expect annual average UK house prices to increase by around 4% over the year. While the third quarter of 2013 surpassed the previous average UK house price peak we saw in 2007 Q3 in cash terms, once adjusted for CPI inflation the average UK real house price will be still over 10% below this peak at the end of 2014.

*Note that these projections do not take account of methodological changes to the national accounts, which in 2014 will include R&D spending being classified as investment in the UK and other European Union (EU) countries.