Interview Transcript Below:
Hello and welcome to the Global Forecast from the Economist Intelligence Unit. I'm Tony McMahon and as ever I'm joined by Robin Bew.
Robin, the UK economy was reported to have shrunk by more than expected in December, so was it all down to the snow?
Well according to the ONS, the shrinking was down to the snow, but even if we hadn't had the bad weather, they seem to be suggesting the economy would have been flat, which is a pretty poor result relative to what most commentators were expecting. Most people thought the economy was going to grow and actually grow by quite a bit.
So the snow clearly made things a lot worse, but even leaving that to one side, it was a much worse number than lots of people were expecting and of course many people are very worried about that.
There are rumbles at the Bank of England over the current level of rates and the perceived threat of inflation. Do you think they're going to bite the bullet and up rates?
I think not. I mean inflation is high. We're running at just shy of 4 per cent and from the Bank of England's perspective, they're now talking about inflation rising towards 5 per cent over the course of the next few months. Of course, we had the VAT rise that's going to feed through, Stirling is relatively weak, commodity prices are pretty high, so you can see where more inflationary pressure is going to come from.
But equally, the economy is weak and that GDP number minus 0.5 per cent in Q4 but flat if you exclude the snow, that's before all the fiscal austerity is really starting to bite.
So I think the view of the Bank, and certainly our view as well, is that the headwinds against the economy are just going to get stronger and stronger as we go through the year and while inflation is going to be high because of these special factors, ultimately, that will drop out.
