Economy starts 2015 on a surer footing

While the preliminary estimate of Q4 GDP indicated that the recovery lost pace towards the end of 2014, early 2015 appears to have seen a renewed acceleration. Indeed, monthly indicators of output from the CBI and Markit both picked up in January, while measures of confidence have strengthened. And while the forthcoming general election might lead to a period of political uncertainty that dampens sentiment, we are relatively confident that the recovery will not lose pace. The boost to households’ discretionary spending power from lower oil prices has not fully come through yet, and it will take some time for manufacturers to invest in new forms of production made profitable by lower oil prices. Meanwhile, surveys continue to indicate that pay growth is strengthening, while recent falls in market interest rates suggest that the cost of bank finance is set to fall further. So for now, we still think that GDP is on track to rise by a robust 3% or so this year.