Ten predictions for 2015 from leading economists: From a cheap petrol boom to London house price falls, what will the next 12 months mean?
01-03-2015
By Marc Shoffman for Thisismoney.co.uk
Markets have tackled Middle East conflicts, talk of interest rate rises and a possible break up of the UK during 2014.
Economists are predicting another action packed year in 2015 with general elections in the UK and at least 11 other countries, falling oil prices and the possibility of record low interest rates actually starting to rise.
Amid falling oil prices, a slowdown in the housing market, what are economists forecasting for 2015? We reveal the key forecasts from the CEBR and IHS Global Insight.
Key events: 2015 will be action packed for politics, currencies and sport
Considering where markets and the political landscape will go can help plan your spending, saving and investing for the year ahead
But the trouble is nobody can predict the future.
Economists have plenty of tools and data to help make forecasts and provide some direction, but be warned that these have in the past been shown to be wrong.
For example, the Centre for Economic and Business Research makes predictions at the end of each year for the 12 months ahead.
Last year it predicted possible interest rate rises in the UK and US, neither of which materialised
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So how many predictions will the economists get it right this year?
A year of two halves
The CEBR is predicting the year may start badly, with negative momentum in China, Japan, the Middle East, Russia and especially Europe.
But cheap food, cheap petrol and falling energy bills should revitalise household consumption around the globe and by year end the world economy could be close to booming. It suggests a recovery could start before the end of June.
One big focus will be the oil price.
Brent crude oil has roughly halved in price since the summer to stand at a five-and-a-half-year low of $57, amid concerns about a supply glut due to the US shale oil boom and weakening global demand from the likes of China.
This has fed into lower inflation and petrol prices.
But Douglas McWilliams of the CEBR expects the price to bounce back as the world economy recovers but, may break the $50 mark before then.
Interest rates
Rates: Will Mark Carney raise rates in 2015?
Barely a week has gone by in 2014 without talk of interest rates rising, falling or being held at their record lows
The recovering economic situation in the US means the CEBR expects an interest rate rise for Americans, but not necessarily elsewhere.
Mr McWilliams says a rise in US rates when the euro and other rates remain low should cause the dollar to rise further.
However not all economists agree.
Howard Archer of IHS Global Insight, expects rates to go up from 0.5 per cent to 0.75 per cent after the May general election in the UK, in around August.
He explains: ‘Bank of England governor Mark Carney has indicated that the Monetary Policy Committee will look through the direct impact of lower oil prices on UK inflation and focus on the medium-term inflation outlook, which will be influenced by wage growth, productivity developments and inflation expectations in addition to how well UK growth holds up. Nevertheless, there is obviously the risk that inflation falling more than expected in the near term and staying lower for longer due to weak oil prices will affect inflation expectations.
‘On balance, we expect the Bank of England to edge interest rates up from 0.50 per cent to 0.75 per cent around August and then hold fire for the rest of 2015 partly to see how the economy reacts to the first move in interest rates for over six years.’
He says it is entirely possible that the Bank of England will hold fire on interest rates until the fourth quarter of 2015 or even until early 2016 if there are worries about deflation and wage growth.
Inflation
Inflation was a big concern in the UK at the start of the year with rising bills and talk of an interest rate rise.
But much of that talk has faded and inflation has instead fallen, and could drop further according to the CEBR.
Mr McWilliams says: ‘The UK should continue to do fairly well and growth might surprise on the upside. Inflation could even be negative on the consumer price index measure in the Spring and Summer for the first time ever and on the retail prices index measure for the first time, other than some months in 2009 when the figures were distorted down because interest rates had fallen sharply, since April 1960.
'The last full year of negative inflation in the UK was 1933 when inflation was -2.2 per cent.’
IHS is predicting consumer price inflation will average just 1 per cent in 2015 and to spend the first half of the year largely under 1.0 per cent.
Mr Archer says: ‘The inflation environment currently looks particularly muted, with supermarkets still heavily engaged in a food price war and oil prices recently hitting a five-and-a-half year low’
UK election
UK voters will go the polls in May with issues of the economy, austerity, the NHS and immigration likely to be central focuses.
Will the UK Independence Party take more seats, can the Liberal Democrats recover, will we see another coalition, and will Ed Miliband be Prime Minister?
Those are just some of the questions that will interest voters and markets in 2015 ahead of and after the general election.
The CEBR predicts a ‘prospect of ending up as a real mess’
But it is not just the UK facing political change.
There are elections in 2015 in Canada, Mexico, Argentina, Nigeria, Israel, Poland, Portugal, Spain, Sweden, Sir Lanka, Myanmar, Thailand, Turkey and Greece.
Mr McWilliams says: ‘The Greek election might be the most important, because it could lead to the breakup of the euro.
‘The Swedish election might be in some ways the most interesting because Sweden reformed its economic policy under the previous government and is the only European economy which we forecast to rise up the world economic league table to 2030.’
The UK economy
Mr Archer is predicting UK GDP growth at 2.7 per cent in 2015, which would be up marginally from estimated growth of 2.6 per cent in 2014 and the strongest performance since 2006.
He explains: 'With oil prices falling to five-and-a-half year lows at the end of December and earnings growth now finally showing clear signs of trending up, the economic fundamentals currently look broadly positive for the UK in 2015.
Global outlooks: What will happen to world markets in 2015?
'Persistent low oil prices are expected to keep UK consumer price inflation very low, which along with improving earnings growth and further increases in employment should give a marked lift to consumers’ purchasing power.'
Unemployment fell in the UK during 2014, and Mr Archer expects it to drop from 6 per cent to 5.3 per cent by the end of 2015.
The pound
In 2014 many worried about investment being put on hold amid the Scottish referendum and the eventual No vote on the issue of Scotland’s independence.
There is plenty more to put the pound under pressure in 2015, according to the CEBR.
It says: ‘The election, the ‘backdoor mansion tax‘ changes in Stamp Duty, the prospect of further tax rises and the possibility of withdrawal from the EU should leave the pound fairly weak especially in the pre-election period and after the election if there is a left wing government.’
Mr Archer expects to pound to fall further against the dollar in 2015, possibly reaching below $1.50, but should do better against the euro.
He says: 'On the assumption that there is not extended major political instability following May’s general election, we expect the pound to strengthen overall, supported by still decent UK growth and expectations that the Bank of England will start edging interest rates up before the end of 2015.'
London
The Chancellor George Osborne ended the year talking about building a Northern Powerhouse by investing in transport and infrastructure, but London is still set to be the central focus in 2015.
The CEBR says the capital will continue to grow faster than the rest of the UK, with housebuilding at a faster rate than the post war reconstruction.
House prices
The housing market slowed down towards the end of 2014 as mortgage approvals reduced along with house price growth.
More housebuilding should push prices down further, according to CEBR. Increases have already slowed and the CEBR expects house/apartment prices to fall in London, the Middle East and most of Continental Europe.
Asian prices are falling in most locations but will probably turn around during the new year, with prices rising in Singapore from early in the year and in China and Hong Kong later in the year, Mr McWilliams says.
He explains: ‘Prices in the US, which are already low, should continue to edge up though with regional variations. House prices outside London in the UK should be roughly stable.’
Back in the UK, Mr Archer predicts house prices will rise by around 5 per cent during 2015, moving away from the double digit growth of previous years. In the middle of 2014 prices were up on average more than 10 per cent on a year-on-year basis.
He says: 'Significant restraint on house buyer interest and prices is still expected to come from more stretched house prices to earnings ratios, tighter checking of prospective mortgage borrowers by lenders and the prospect that interest rates will eventually start to rise in 2015. Many people may also be deterred from buying houses because they look pricey in a number of areas after recent sharp rises.'
TipTV: Why do economists always get it wrong?
Eurozone
Will the European Central Bank finally step in and help struggling eurozone economies, can the single currency survive?
2015 will be a crucial year for the economic bloc, according to the CEBR, and could be the year that Greece exits.
Mr McWilliams says: ‘We have predicted this before but with a Greek general election scheduled for the beginning of the year and Syriza leading the polls Grexit is now a more plausible scenario.
‘There are silver bullets still left such as quantitative easing – however the ECB is divided on the decision and uncertainty around Greece makes QE less likely while at the same time making it more necessary.’
Sporting predictions
It is a big year for sport in 2015 that should keep football, rugby and cricket fans gripped.
The CEBR is backing Chelsea to win the Premiership, either England or Ireland to win the Six Nations and Australia to win the Cricket World Cup.
Mr McWilliams is backing New Zealand to win the Rugby World Cup in the Autumn.