By Daniel Hunter

The National Institute of Economic and Social Research (NIESR) have significantly revised the forecast for GDP growth in 2015, to almost 3 per cent.

This revision is almost entirely due to the sharp fall in the oil price. Not only does this boost consumer spending, now forecast to increase by almost 3.5 per cent in 2015, it also improves the UK’s trade balance. However the weakness of the global economy — and in particular the Euro Area, by far the UK’s largest trading partner — remains a hindrance to a significant improvement.

NIESR expect growth to moderate in 2016 and beyond, as the positive impact of the oil price shock dissipates and domestic demand growth softens. Offsetting this is a strengthening global economy that should support the recovery in the growth of exports.

The rate of inflation is forecast to average around ½ per cent per annum in 2015, but there is considerable uncertainty; NIESR estimate a 1 in 10 probability that prices will fall this year. The pass-through from oil price and exchange rate developments to consumer prices is significantly disinflationary, but this is expected to be only temporary.

As the labour market remains healthy,NIESR expect unemployment to fall to about 5¼ per cent by the end of the year and to remain close to this level through to the end of the forecast horizon.

These projections assume that the government sticks to its current fiscal plans. Should this be the case, the result would be an absolute surplus in 2018-19, while public sector net debt would peak at 83 percent of GDP in 2015-16.