Forex Economics Weekly – Uncertain Outlook for UK Economy by Lloyds TSB

The prospects for UK economic growth have deteriorated sharply in the last two months. The main reason for this relate to the higher than expected level of price inflation which has hit consumer incomes and company profits badly and so is leading to weaker consumer and investment spending. In addition, the intensification of the credit crisis – the loss of confidence in financial markets that is reflected in sharp falls in share prices and housing markets – is adding a more worrying twist to the outlook.

Financial market turmoil makes economic forecasts even more uncertain than usual…

The prospects for UK economic growth have deteriorated sharply in the last two months. The main reason for this relate to the higher than expected level of price inflation which has hit consumer incomes and company profits badly and so is leading to weaker consumer and investment spending. In addition, the intensification of the credit crisis – the loss of confidence in financial markets that is reflected in sharp falls in share prices and housing markets – is adding a more worrying twist to the outlook. This makes forecasting economic variables and outcomes even more fraught than usual. In a recent Weekly, we looked at how projections of economic growth 1 year ahead performed in the last decade and noted that the average error in predicting gdp growth was 1 percentage point.

 

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