Oil price decline to bolster recovery in 2015

The halving of oil prices over the past six months should provide some timely support to the economic recovery. Indeed, coupled with the freezing of energy bills this winter, lower oil prices should have ensured that CPI inflation eased to just 0.5% last month. What’s more, with lower oil prices set to keep petrol’s contribution to CPI inflation firmly negative for a while longer, and weak import and producer prices still feeding through into the high street, inflation should remain below 1% throughout the first half of 2015, helping to bolster the UK’s economic recovery. Indeed, with households spending around 5% of their annual incomes on petrol, the fall in petrol prices will boost the amount which they have left to spend on other items by nearly 1%. In addition, lower oil prices should make some production lines viable again, providing some much-needed impetus to the manufacturing sector. Accordingly, we still expect GDP to grow by about 3% in 2015.