Economy predictions for 2014

Economy predictions for 2014

By independent expert Tony Hazell

It’s all systems go for the UK, with 2014 heralding better times as we reap the benefits of the long-awaited economic recovery.

There should be more good news on jobs, and mortgage rates should stay low. Rapidly rising energy bills remain one blot on the landscape.

The European Commission predicts the UK will be the fastest growing major European economy in 2014, signalling both a happy and potentially prosperous new year.

The Bank of England says the economy should grow by 2.8 per cent, leading to more jobs and, eventually, higher wages. Unemployment is at its lowest for more than four years with 2.47 million – or 7.6 per cent – out of work.

Unemployment

Unemployment

Interest rates

Mark Carney, the Bank of England Governor, has pledged not to raise interest rates while unemployment remains above 7 per cent. The Bank now says there is a 50/50 chance this level may be breached before the end of the year.

However, Mr Carney says this won’t automatically trigger a rise so it looks likely that base rate could remain at 0.5 per cent throughout the year.

Inflation

One figure he will be looking at when making decisions is inflation. The Bank of England target is 2 per cent. It is currently just over this level and is expected to average around 2.5 per cent – which should not set any alarm bells ringing.

Add the mortgage support schemes into the mix and 2014 looks like being another year of cheap mortgages.

However, with the Bank of England base rate continuing at its record low, it looks set to be another year of low rates for savers right across the market.

House prices

House prices are widely expected to keep climbing in 2014. One forecaster has predicted an average 11 per cent rise. But there are likely to be wide regional variations, with the biggest rises in London and the South East.

Other forecasters have made more modest predictions, with the average still an inflation-busting 7 per cent. This could push the average UK home from just under £166,000 to more than £177,000.

Graph - House Prices

Energy prices

One dose of inflation no household can avoid will come with energy price rises. This winter has seen inflation-busting increases in bills overall and, despite the prospects of a short-term freeze, the National Audit Office has warned they could rise faster than wages for the next 17 years.

Summary

Despite this, however, the overall picture is very bright and we can enter 2014 with a decided spring in our steps.

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