United Kingdom: Strong growth and job creation open up the prospect of earlier-than-expected monetary policy normalisation

Summary

Solid and stable growth continues in 2Q14, supported by strong domestic private spending, with hearty job creation, but no pressure on wages, increasing the uncertainty about the economy’s spare capacity, which has important implications for monetary policy. Strong growth expected for 2014-15, supported by solid domestic demand, especially in investment; inflation will continue to hover slightly below the BoE target in the forecast horizon, making communication to bring forward the rises in interest rates difficult. The BoE prepares the ground to start raising interest rates, which we now expect for the first quarter of 2015.

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