Oil price fall forecast to help boost GDP growth to GDP to 2.9%

THE UK is emerging as a clear winner from the collapse in oil prices, according to the latest quarterly forecast from the EY ITEM Club.

The slump in oil and other commodity prices will provide a “shot in the spending arm” for UK consumers who are set to benefit from a 3.7% increase in disposable income, says the report.

Lower oil prices mean inflation will average around zero in 2015 and turn negative in the early months of the year, helping to stay the hand of MPC interest rates.

At the same time, the UK’s key trading markets in America and Europe stand to benefit from lower commodity and energy prices, helping them to offset the effects of weak global demand on UK exports.

Very low inflation will also push the first interest rate rise back to 2016 and help provide renewed momentum in the housing market, it said.

EY ITEM Club’s winter forecast is now expecting GDP to grow by 2.9% in 2015, up 0.5 percentage points compared to the forecast in October.

Chief economic advisor to the Club, Peter Spencer said not all economies would be winners from oil prices collapsing, but the UK certainly would be.

“We have described the previous weakness of commodity prices as a silver lining in the storm clouds gathering over the world economy,” he said.

“But with oil prices down 50% on last June, the silver lining has turned to gold. while it is not a game changer in terms of growth prospects, falling oll prices come just as the recovery was losing momentum and will move the game up to a higher level for a year or two.”

EY ITEM Club is expecting income from wages and salaries to increase by 3.5% in 2015, resulting a rise in real disposable incomes by 3.7%.