Economic Review - Outlook for 2006 Recovery or Relapse?

In this Review, Roger Bootle, Economic Adviser to Deloitte, looks at whether the slowdown in economic growth seen in 2005 is likely to mark the beginning of the end of a golden era in the UK economy or simply a pause for breath before the economy embarks on another period of rapid expansion.

Roger argues that the household and public sectors need to consolidate their finances further before the economy can grow at rapid rates once again. He concludes that 2006 is likely to be another year of sub-trend growth with the outturn roughly 2%.

Roger notes, though, that there are reasons why things could turn out better. First, it is possible that the bulk of the slowdown in economic growth in 2005 can be attributed to the doubling in the oil price. So even if oil prices remain at their current high levels, the negative effects on growth should fade away over the coming quarters. Second, the modest impact on inflation