Outlook for 2014 still bright

The economic recovery appears to have remained strong at the start of 2014. Although the composite CIPS/Markit activity index weakened again in January, it still points on the basis of past form to robust GDP growth. In addition, confidence amongst firms and households in the economic outlook has continued to improve. And with unemployment falling rapidly and inflation easing, real household spending should continue to grow strongly. What’s more, the benign inflation outlook suggests that the MPC is likely to keep official interest rates on hold throughout 2014, even though it will probably abandon the current form of its forward guidance soon. Accordingly, we think that GDP is likely to grow by a healthy 3% or so both this year and next.