Significant slowdown still looks unlikely

Fears that the UK’s economic recovery is rapidly losing steam appear largely overblown. Admittedly, the Markit/CIPS Composite PMI, which weights together the headline indices for the manufacturing, construction and services sectors, weakened to a 17-month low in October. But based on its longrun relationship with GDP, the index suggests that the recovery broadly maintained rather than lost pace at the beginning of Q4. What’s more, with productivity finally recovering, consumer and business confidence remaining at high levels, and a recovery in real earnings set to finally get underway over the coming months, we expect GDP growth to remain robust. Indeed, our forecast is for growth of about 3% in both 2015 and 2016. And whilst this strong growth outlook may prompt the MPC to press ahead and raise interest rates in Q2 2015, the likely weakness of inflation suggest that they will raise them very slowly over the coming years.