The UK economy [October 2003]

The world economy has strengthened slightly particularly with the signs of recover y seen in the US and in Asia. Domestic demand in the Euro Area is weak however and this will hamper UK export growth. UK GDP growth is weaker than expected but is expected to gather strength in the second half of 2003. The economy is forecast to return to trend growth in 2004. Inflation remains benign and the Bank of England have left interest rates at 3.5 per cent with scope for a further cut although it is unlikely that they will need it. The UK labour market remains healthy with a steadily rising employment rate and low unemployment.
UK real GDP growth is forecast to be 1.7 per cent in 2003 and 2.3 per cent in 2004. Consumption and government spending are forecast to be the main components of demand but as the recovery sets in we expect investment to become more important. As previously forecast unemployment is expected to remain at low levels with steady employment growth during the year. The outlook for the UK economy remains good.