From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    Boom time for economy in 2014

    Boom time for economy in 2014

    16 December 2013

    • Economic and political cycle brilliantly aligned – by accident or design?
    • Positive surprises – higher growth, lower inflation, rising earnings, falling unemployment

    Last week I represented the London School of Economics at an Economics Research Council debate called the Clash of the Titans.  http://www.ercouncil.org/clash-of-the-titans-2013/

    The event was chaired by Andrew Sentance of PwC, former member of the Bank of England’s Monetary Policy Committee, and saw Kevin Daly of Goldman Sachs – representing Cambridge University, Stephen King of HSBC – representing Oxford and myself – represented London School of Economics predicting the economic outlook for the year ahead.  We all produced forecasts and explained our rationale.  My expectations were the most optimistic.

    If you want to see a transcript of my speech and my expectations for 2014, you can link to them here. www.genesysdownload.co.uk/rosaltmann/Clash_of_the_Titans_econ_forecast_2014_Dec_2013.pdf

    Here are some of the main points I made:

    Leading indicators show UK set for a pre-election boom:  The leading economic indicators have been strong for months now and are getting stronger.  Mainstream forecasters and commentators have ignored the strength and breadth and have instead focussed on lagging indicators, or have become so used to bad news that they are finding it difficult to see the boom coming.  I do not see much sign of weakness.

    Are politics driving economic policy? Could the economy have been carefully timed by the Chancellor to align the economic cycle with the electoral cycle? Has George Osborne, renowned political strategist, been playing a very clever game?  If the aim is to ensure economic recovery for 2015, then a recovery starting in 2013 and accelerating into 2014 is good timing politically.

    Investment spending set to pick up:  I expect investment spending to finally rise sharply in 2014, with both Government and business investment showing strength.  The Autumn Statement shows Government investment is planned to increase by over 7%.

    Labour wrong-footed on austerity and growth:  The economic upturn so far has wrong-footed Labour, who failed to forecast the growth of the economy this year, despite the rising leading indicators.  By over-playing the impact of austerity, and by failing to spot the signs of recovery, the Opposition has enabled the Chancellor to restore his economic credibility to some degree as the economy recovers.  The Tories know that housing and debt drive growth short term and, although that is not the best way to achieve a sustainable recovery, it is politically expedient.

    Labour cost of living challenge may be undermined by falling inflation in 2014:  Labour has now changed its attacks on Government policy to focus on the cost of living.  It may be that the Chancellor is one step ahead on this one too.  Given the strength of growth, one would normally expected a pick-up in the inflation rate, however there are reasons to suggest inflation will turn out much lower than expected.  The Chancellor is manipulating the cost of living somewhat, by holding down energy price increases and rail fare rises, keeping a lid on council tax and perhaps other administered prices as well.  In addition, there are strong deflationary forces coming from Europe and the 5% trade-weighted rise in sterling will depress price rises.  The base effect from this year is also likely to flatter the inflation figures for next year.  I am predicting reasonably subdued inflation perhaps even being below the Bank of England’s target at 1.9% in Q1, then the rest of the year remaining around the 2% target level.

    Pre-election boom:  By accident or by design, it seems the economy has been very conveniently timed to match the electoral cycle.

    Why don’t you submit your predictions too?  This is a competition open to anyone and you can enter between now and December 31st .  The competition which will be judged next year and a case of wine is up for grabs.   Don’t forget to enter, you have to be in it to win it. You can enter here: http://www.ercouncil.org/cott2013-competition/


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