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UK Weekly Economic Briefing: 27 Jan 2012

15 Pages Oxford Economics January 27, 2012 SKU: OFE6784699

Business surveys and labour market indicators are offering widely contrasting signals as to the degree of spare capacity in the UK economy. On balance, we place a slightly greater emphasis on the indicators of the labour market, which can generally be measured more accurately and which better fit with the anecdotal evidence. Based upon this data, we estimate that the output gap was around -3.2% of potential output at the end of 2011. This is much lower than the 2009 peak in the output gap of -6.1%, but it does imply somewhat more spare capacity than estimated by OBR. A range of factors - including a higher NAIRU, lower migration flows and tight credit conditions - mean that our forecast shows potential output growing by just 1.6% a year in 2012-16, with growth during that period accelerating from just 0.6% in 2012 to 2% a year in 2015-16, as some of the negative legacy effects of the financial crisis gradually fade. The large output gap will allow stronger growth in actual GDP, which we forecast will grow on average by 2.1% a year over the next five years, but this would still represent a significant slowdown compared with previous cycles and is somewhat weaker than the OBR's forecast.

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UK Weekly Economic Briefing: 27 Jan 2012

Oxford Economics
January 27, 2012

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