Britain’s economy will surge back to life in the next six months following its slow start this year, a leading forecaster has predicted, prompting the Bank of England to raise interest rates next spring – more than a year earlier than its previous projection.
The National Institute of Economic and Social Research (NIESR) said a boom in exports after the fall in the pound and a return to bumper wage rises next year would be enough to increase GDP growth to almost 2% and convince the central bank to increase the cost of borrowing.
Jagjit Chadha, the institute’s director, said a rise interest rates would also have the effect of supporting efforts by high street banks to boost their profits and the reserves needed to protect them against another financial crash.
“We are not talking about a rapid return to higher interest rates, but signalling that process – even if it takes five to seven years – will help banks rebuild their balance sheets and create a healthier financial system,” he said.
In a separate report, Chadha said one of the main reasons for the UK’s slow growth in recent years was the weakness of the banking sector and its ability to support expanding businesses with extra loans. “The finance sector is crucial because every business has to go to a bank to put forward their business plan and get credit,” he added.
NIESR’s forecast comes despite growing concerns that Brexit uncertainty is discouraging companies from investing in the UK and hampering a bounce-back from low growth in the first six months. While foreign firms have bought high-profile properties in the UK since the Brexit vote, including last month’s £1.2bn purchase of the Walkie Talkie building in London, there are few examples of increased investment in new factories.
Official figures last week showed that GDP growth was 0.3% in the three months to the end of June – half the rate of growth in the eurozone – after a rise of 0.2% in the first quarter.
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Source: New feed 2