The UK economy: is the outlook really that good?

Abstract

The UK economy has been in excellent shape in recent years. There are, however, risks to this positive outlook. The main risk, which has materialised since this article was written in December 2000, has been the sharper-than-expected US slowdown. We anticipate that the United States will recover relatively rapidly in the second half of 2001. The UK economy will see marginally slower growth, higher unemployment and lower inflation as result of the US slowdown. The Bank of England's Monetary Policy Committee has plenty of room to reduce interest rates further to stimulate demand, however, and there are no signs that consumer or business confidence in the UK has been adversely affected by events in the United States. The outlook for the UK economy remains positive, with the economy expected to expand at close-to-trend rates, sterling to weaken somewhat and inflation to remain below its 2.5 per cent target during the next few years. Copyright © 2001 Henry Stewart Publications