United Kingdom

THE UK economy will grow by 2.4pc in 2015, well below the 3.1pc growth expected this year, according to industry experts. It represents a significant drop from the forecasts released by the Bank of England, the Confederation of British Industry and the International Monetary Fund.

The Bank of England’s most recent forecasts predict GDP growth of 3.5pc this year and 3pc next year, while the CBI is forecasting 3pc and 2.7pc growths for respective years. The Fund predicts the economy to grow by 3.2pc this year but slowdown to 2.7pc in 2015.

The UK economy picked up since 2013. The National Institute of Economic and Social Research estimated the UK GDP rose 0.7pc in the three months to end-September, less than the 0.9pc in the second quarter. The first quarter growth was revised down to 0.7pc from 0.8pc. The forecast for GDP growth is still relatively good. According to the IMF, Britain will overtake France to become the second-biggest economy in Europe behind Germany next year when GNP will rise to £1.9trn, surpassing French GNP of £1.8trn.

The reduction in quarterly growth comes after the Office for National Statistics (ONS) stated that UK inflation had fallen to its lowest rate in five years.. It is currently at a five-year low of 1.2pc and is likely to average 1.3pc in 2015. Interest rates are also expected to remain low. The Bank of England is unlikely to rush to raise borrowing costs in the face of falling commodity prices and low wage growth. Most economists do not see inflation to reach the BoE’s 2pc target until the end of next year.

UK unemployment figure has fallen below 2m for the first time in almost six years, down at 1.97m in the three months to the end-August. The unemployment rate of 6pc is at the lowest level since late 2008. The number of people in employment rose by 46,000 over the three months but it was the weakest quarterly gain since May last year. Wage growth remained below the current 1.2pc inflation rate.

The cost of living has steadily risen. The families of the 2.3m children still live in poverty. End Child Poverty campaign revealed that 25pc of British children are underprivileged. Energy companies are hiking electricity and gas bills while the cost of ordinary food and clothing is rising. Food, services, petrol, and other things of daily use are becoming more expensive. Housing prices are up and the shortage of homes in Britain has led to extraordinarily high rental prices. But wages are still meagre and weak.

The average total pay (including bonuses) for employees in the UK is £479 per-week before tax and other deductions. Annual pay growth has been lagging behind inflation since 2008 and latest official figures showed it was just 0.7pc. On the other hand, the UK’s budget deficit has risen since last year. Public sector net borrowing during April and Septembe) was £58bn, according to the Office for National Statistics.

Total government revenue was down by 0.4pc in the first half of the tax year while spending was 3pc higher over the same period. Higher welfare spending, increased spending by government departments, higher debt interest payments and increased investment contributed to the rise in government spending. It appears that UK would miss target of reducing the deficit by more than £12bn in 2014-15.

If the current trend persisted, borrowings could be £10bn above the target. Treasury chief George Osborne had promised to eliminate the government deficit by the fiscal-year ending March 2019. The Office for Budget Responsibility, the UK’s independent fiscal watchdog, had estimated that total public borrowing need to be £96bn for the 12-month period to March 2015. But in first half of the fiscal-year, borrowing has already reached 60pc of that level.

Canada

The Canadian economy seems to be gaining momentum this year and is in position to post strong growth in the year ahead, according to the Provincial Monitor report released by BMO Economics. Real GDP is expected to expand 2.3pc this year, up from 2pc in 2013, before accelerating to 2.4pc in 2015.

The recent strength has been driven by an increased contribution from net exports, supported by the combination of a weaker Canadian dollar and stronger US economy. The consensus of most published forecasts by commercial banks is for an expansion of about 2.25pc in 2014 and 2.5pc in 2015.. The Bank of Canada expects the economy to grow 2.2pc this year and 2.4pc in 2015.

Canada’s economy soared in the second quarter to an annualized pace of 3.1pc, marking the largest quarterly gain since the third quarter of 2011. Real GDP was up by 0.8pc during the quarter ended June, compared to a 0.2pc increase in the first quarter of 2014.

Canadian inflation was in line with the Bank of Canada’s target of 2pc in September, with the core rate staying at 2.1pc, according to Statistics Canada.

Canada’s unemployment rate plunged to 6.8pc in September, the lowest rate since December 2008. About 74100 net new jobs were added in a month. As the economy entering a period of above-potential growth, RBC expects the labour market conditions to tighten. Tightness in the labour market will result in a recovery in full-time employment and in time, exert upward pressure on wages. The average unemployment rate for the first nine months of 2014 is 7.1pc.

Canada is projected to eliminate budget deficit this fiscal year and post moderate surpluses in the following years. In 2013-14 deficit was $5.2bn, significantly lower from the previous estimate of $16.6bn..

The government expects that the future surpluses would go toward paying the debt while economic growth alone could reduce the debt as a percentage of the economy. The official goal is to reduce the federal debt from about a third of GDP to a quarter by 2021. Moody’s Investor Service has raised concern about Canadian household debt and rising house prices. It noted that household debt is high and has continued to rise, as have house prices.

Published in Dawn, Economic & Business, October 27th, 2014