UK policy mix to be dominated by fiscal policies

Barclays notes:

We have aligned our forecast with the government's plans but only for the first two years (structural consolidation of 0.9% and 1.3% of GDP in 2015-16 and 2016-17, respectively) as we believe that fiscal consolidation will have to be eased after that to prevent an excessive slowdown in activity. 

Over the next two years, fiscal consolidation will be material and predominantly affect areas such as tax credits, housing benefits, operating expenditure and defence spending. Accordingly, the Bank of England will have limited opportunity in the short run to hike rates "normally" as the policy mix will remain dominated by fiscal policies.