By Anant Chandak
BENGALURU (Reuters) – Britain’s economy will grow a bit faster this year than thought a month ago, a Reuters poll of economists predicted, partly due to unexpectedly strong growth in the first quarter that was not expected to persist.
Sentiment has improved following a basic trade deal with the United States, which still leaves a 10% tariff on British goods but lowers duties on cars and steel. Economists surveyed do not expect it to make much difference to growth.
The poll was taken May 15-20, mostly ahead of a UK-European Union summit in London aimed at resetting relations nine years after Britain voted to leave the trading bloc.
A strong minority of economists who contributed to both this month’s and last month’s polls, 22 of 50, raised their growth forecast for this year by 25 basis points on average, with the median at 1.0% versus 0.9% expected in April. It was the first median upgrade in five months.
“The UK government is massively increasing spending this year. There’s a lot of money coming in and that’s going to act as a bit of a tailwind as well. Real wage growth is also still quite strong, so the economy still has some reasonable underpinnings”, said James Smith, economist at ING.
The Bank of England is expected to stick to one interest rate cut per quarter, with the next likely in August and then in November, ending the year at 3.75%.
That rate outlook has remained steady for many months.
Still, economists and markets are braced for inflation to rise well above the BoE’s 2.0% target before easing back by the middle of next year.
Inflation is forecast to have risen sharply to 3.3% in April, from 2.6% in March, in a release due on Wednesday. It will average above 3% this quarter and next, according to the latest poll.
“On services inflation, the news should actually get better than the Bank of England expects,” said ING’s Smith. “This week it’ll come in a little bit below their forecast and then potentially again in May and in June.”
(Other stories from the Reuters global economic poll)
(Reporting by Anant Chandak; Polling by Renusri K. and Jaiganesh Mahesh; Editing by Ross Finley and Alex Richardson)
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