UK economic momentum reaccelerated

UK economic momentum has reaccelerated to a slightly-above-trend pace that looks set to continue through to the end of 2015. The main engine of growth continues to be the consumer supported by higher wage gains, solid employment, and low inflation. However, these tailwinds should fade in 2016, with the rebound in inflation likely to modestly erode real incomes, with an added drag from the first interest rate hike by the Bank of England (BoE). 

The euro zone recovery also bodes well for UK exports, though the strength of the GBP will likely hold back some of the upside. Overall, UK real GDP growth is expected to advance just above 2½% this year before slowing towards a still robust 2% through to 2017. The recent fall in the price of oil, coupled with the relative strength of the GBP has dampened the outlook for UK inflation. 

"We expect near-zero CPI inflation to persist until early-winter before base effects lift headline inflation up towards 1% in early-2016, which will allow the BoE to embark on a gradual path of policy normalization likely starting in February", says Scotiabank.