Fastest economic growth since 2006 after oil price drop

THE slump in oil prices is fuelling the fastest growth in the UK economy since before the financial crisis, according to a leading think-tank.

In a pre-election boost for Chancellor George Osborne, the National Institute of Economic and Social Research increased its forecast for GDP growth this year to 2.9 per cent – the highest since 2006, when it reached 3 per cent.

In November it predicted the economy would grow 2.4 per cent this year, but the think-tank said its ‘significant’ revision is ‘almost entirely due to the sharp fall in oil price’, which has halved in value from $115 a barrel in June to just under $60 now.

The benefits are already filtering through to households, with lower petrol prices and energy bills helping to push inflation down to 0.5 per cent.

In a speech on Thursday, Bank of England governor Mark Carney is expected to say that Britain faces its first period of deflation – or falling prices – in more than half a century. This will fuel speculation the Bank will leave interest rates on hold at a record low of 0.5 per cent, providing more breathing space for homeowners. Falling prices and rising wages have presented a dilemma for Labour, which has centred its General Election campaign on the ‘cost of living crisis’ in the UK. Shadow Chancellor Ed Balls recently dismissed figures that the UK had the fastest growing economy among the G7 nations – the world’s seven leading economies – in 2014, arguing that working people are ‘still not feeling the recovery’.

But Paul Hollingsworth, UK economist at analysts Capital Economics, said: ‘This is coming at just the right time for Mr Osborne. The falling oil price is providing a considerable boost for households.’

In another boost for Mr Osborne, NIESR also predicted unemployment would fall faster than previously expected, dropping from its current rate of 5.9 per cent to 5.2 per cent by the end of the year. This equates to more than 200,000 extra people finding work.

But it issued a cautionary note, warning that ‘the weakness of the global economy – and in particular the euro area, by far the UK’s biggest trading partner – remains a hindrance to a significant improvement’.

John Longworth, director general of the British Chambers of Commerce said: ‘I have detected a much higher degree of confidence about the future among businesses.’

Alex Brummer – Page 67