A recent report has suggested that the UK economy is moving ahead to mark a robust growth this year, motivated by the thriving financial sector and constantly increasing business investment. The report was prepared by the Ernst & Young ITEM Club that has used Treasury’s own model of the economy. The report has predicted a strong growth of 2.9 percent in the year 2007. However the group has indicated that the economy was in ‘rude health’ and sticking to inflation objectives was critical to discard further interest rate rises.
The report further revealed that the Bank of England may decide to raise rates once more if it receives signals that inflation was pushing up salaries. It further emphasized the imperative need to check Wage deals in particular to avoid rate increases.
Chief economic advisor to ITEM, Peter Spencer has reportedly stated that the recent increase in interest rates was ‘a warning shot to wage negotiators that the 2% inflation target is non-negotiable’. According to an official figure the average earning in U.K. increased by 4.1 percent in the year to November, despite a thinning labour market.
It would be pertinent to note that the Consumer Price Index last year shot up by 3 percent and the Retail Price Index jumped to 4.4 percent. The report has predicted that the inflation rate will fall back to the target rate of 2 percent this year owing to falling energy prices and swelling workforce.
