UK domestic demand to remain resilient

As in 2015, the burden of driving growth is set to fall squarely on the domestic private sector. Fiscal headwinds are expected to mount and the prospect of a significant pickup in net exports still looks limited - in the face of ongoing global growth concerns and sterling's lasting strength. While the key indices of both consumer and business sentiment have softened a touch in recent months, there are signs that the declines were prompted by fears of a sharp slowdown in global growth rather than underlying domestic retrenchment. These concerns have receded somewhat in recent weeks. 

On the plus side, the combination of rising employment, stronger pay growth, and easier credit conditions should return to the fore as the key drivers. These forces, aided by an expected pickup in productivity growth as firms boost capital investment in response to the tightening labour market, should serve to strengthen the pace of real household disposable income growth, supporting spending during 2016. 

Some offsetting drag is likely to come from a recovery in oil prices. Although Brent crude prices have breached their 2015 lows in recent days, a recovery to around $65 barrel by the end of 2016 on the projections would serve as a tax on household and corporate outlays.