The UK economy [June 2003]

Once again there has been a weakening of the world economy in the first quarter of this year. The UK however has done relatively well although growth is down slightly. The economy is forecast to return to trend growth in 2004. Inflation is not a significant threat to the economy and some commentators are more concerned with deflation. The Bank of England wisely left interest rates at 3.75 per cent allowing them room for further manoeuvre if the economy and in particular manufacturing does not recover sufficiently in the latter half of 2003. The UK labour market continues to perform well with a steadily rising employment rate and low unemployment. The government has stood by the Treasury assessment on the Euro stating that the time is not right with two of the five tests yet to be satisfied. UK real GDP growth is forecast to be 1.9 per cent in 2003 and 2.3 per cent in 2004. Consumption and government spending will remain important components of demand and investment is forecast to recover in 2004. As previously forecast unemployment is expected to remain at low levels with steady employment growth during the year. Full recovery is forecast for 2004 and the outlook for the UK economy is good.