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Economic growth is projected to strengthen through 2013 and 2014, driven by business investment, which will benefit from low capital costs, still high commodity prices and improving confidence. External demand will also contribute, thanks to expanding US and non-OECD markets and a depreciating exchange rate (since autumn 2012). Household spending will be supported by easy monetary policy yet restrained by tightening mortgage rules and deleveraging. A consolidating public sector will slow growth as well.

Monetary policy remains on hold, given low inflation, contractionary fiscal policy and still unresolved financial-market risks from abroad. However, the gradually tightening labour market suggests that the stance will have to become less expansionary by the latter half of 2014 to contain inflationary pressures. In the meantime, any aggravation of housing price pressures should be addressed by further prudential measures. Fiscal consolidation should continue as planned, but the automatic stabilisers should be allowed to operate.

Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.

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