The only way is up

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...according to economic forecasters looking at the UK (not the platinum haired songstress from the 1980s). Last week the IMF caught up in its Spring forecasting round, taking a more optimistic view of the UK's outlook and revising its growth projections up to 2.9% in 2014 and 2.5% in 2015 - a shade higher than the median independent forecast reported by HM Treasury yesterday (2.8%).

Key IMF highlights

  • Growth has rebounded more strongly than anticipated on easier credit conditions and increased confidence.
  • Unemployment is forecast to fall to 6.9% in 2014 (tho it got there in February according to today's data). Inflation outlook is stable this year and next.
  • The recovery has been unbalanced, with business investment and exports still disappointing.
  • The policy mix is not too hot and not too cold - Monetary policy should stay accommodative, and recent modifications by the Bank of England to the forward-guidance framework were welcomed. Similarly, the government's efforts to raise capital spending while staying within the medium-term fiscal envelope were seen as helpful in bolstering the recovery and for long-term growth.

Elsewhere, the independent forecasters surveyed by HMT in the past month appear to be a bit more upbeat (on average) on rebalancing, with more optimistic forecasts for investment, exports and manufacturing output.

Current UK GDP forecasts - 2014Source: HM Treasury and IMF

Is the only way up?

Independent forecasts (this would include EEF's) certainly suggest that the UK is in for a pretty solid year of growth. But is up the only direction for forecast revisions? It would seem that the number of 'ifs' has diminished this year. Indeed, data releases this week on inflation and the labour market will support a more optimistic view of consumption with wage growth picking up, inflation drifting down and unemployment dropping below 7%. And fewer uncertainties (plus a bit more tax incentive action) should give rise to more investment coming through from businesses this year.

Upward revisions to the economic outlook don't yet extend beyond the end of this year, with the Treasury's survey of forecasters showing that sentiment about 2015 hasn't shifted. EEF will publish its next foreast update in June.

P.S. A few manufacturing facts from the labour market stats

  • Manufacturing workforce jobs were up 1.8% on a year ago.
  • There were 43,000 vacancies in the sector in the first three months of the year.
  • Average earnings, excluding bonuses etc., rose 2.8% in the three months to February compared with a year ago.


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