We project growth for the UK as a whole to be around 1% in 2013, picking up gradually to around 2% in 2014 in our main scenario. As shown, all regions should return to modest growth this year, led by London.
Growth continues to be led by the services sector, with manufacturing and construction experiencing negative growth in the year to quarter one 2013. But, recent business surveys suggest some stabilisation in manufacturing and construction activity and we would expect these sectors to return to modestly positive growth over the next 18 months.
In our main scenario, we expect some moderation in inflation to around 2.4% in 2014, but upside risks remain from global commodity prices. Real earnings growth is likely to remain negative in both 2013 and 2014.
But downside risks remain given the continuing negative growth we expect in the Eurozone this year.