Ernst and Young ITEM Club UK Inflation, Interest Rates and GDP Growth Forecasts 2010

By: Nadeem_Walayat

The Ernst & Young ITEM Club issued their forecasts for key UK economic indicators today including UK GDP growth, Interest rates and CPI inflation for 2010.

UK Economy GDP Forecast 2010

E&Y forecasts that the UK economy will struggle to reach 1% GDP growth for 2010, which matches their last quarterly update of October 2008. They have also revised their contraction for 2009 to -4.8% and also forecast growth for 2011 at 2.5%.

The E&Y original forecast for 2009 (BBC News) was for contraction of 1% so their forecast proved to be abysmally inaccurate when compared against what subsequently transpired of -4.7%.

My in depth analysis and forecast as of 31st December 08 forecasts UK economic growth of 2.8% for 2009, well beyond that forecast by the Item Club, and the original un-revised forecast for GDP contraction remains at -4.75% as of Feb 2009, as illustrated below. Therefore I expect E&Y to continue revising their growth expectations for 2010 higher right into the end of 2010 and early 2011. The forecast for 2011 forecast is more in-line with my expectations for GDP growth of 2.3% for 2011.

UK Interest Rates 2010

UK Interest rates to Remain at 0.5% During 2010, Does not expected any rises.

The E&Y forecast for UK Interest rates for 2009 forecast a fall to 3% by Mid 2009 (HeraldScotland) which proved woefully inaccurate against the actual cut to 0.5% by March 2009. This is against my forecast of a cut to 1% by mid 2009.

My in-depth analysis and forecast of 13th Jan 2009 forecast that UK interest rates would rise to 3% by mid 2011, and end 2010 in the region of 2%.

UK Inflation 2010

Vat increases to see Inflation surge higher to 2.7% but then fall to end 2010 at 1.7%

The E&Y did not make an inflation forecast for 2009.

My in-depth analysis and forecast as of 27th December 2008 forecast that UK inflation would spike higher to above 3% and stay above 3% for most of the year falling to 2.7% by the end of the year.

Therefore my conclusion is that E&Y Item Club forecasts tend to play ultra safe by showing little deviation from the most recent data and the consensus view and hence are prone to significant quarterly revisions into the end of each year as illustrated by their 2009 GDP contraction forecast being revised from -1% to -4.8% this month.

Therefore my forecasts retain a higher probability of transpiring with greater accuracy over E&Y's forecasts inline with the outcomes of previous years.

Source: http://www.marketoracle.co.uk/Article16573.html

By Nadeem Walayat
http://www.marketoracle.co.uk

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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market . Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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