Prospects for UK Economy during 2007

By: Sarah_Jones

UK economic growth picks up during 2006, after the slowdown during 2005, and is expected to rise to 2.25% this year (1.9% 2005) and 2.5% in 2007 though the Treasury is forecasting higher growth at 2.5% for 2006 and 3% for 2007.

The risks are that inflation rises to 3%, which would trigger a serious of sharp rate rises. This is a possibility given that domestic inflation far exceeds imported inflation, and thus inflation is less likely to be impacted by declining oil prices.

Other risks to growth include -

1. The worsening state of public finances, as the debt ratio exceeds the 40% level, which implies higher taxes and thus likely to dampen growth, this could be offset by lowering interest rates following the impact of tax rises during 2007.
2. US Slowdown - As interest rates have risen in the US to curb inflation these are likely to result in a slowdown in the US economy during 2007 and thus impact on global growth. The UK previously was able to counter this through increased government spending, unfortunately this would not be possible this time as public sector spending debt growth is likely to force a breach of Gordon Browns golden rule.

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