The recovery has picked up to a robust pace, with a very accommodative monetary policy and an improving labour market supporting household consumption. Economic activity is expected to continue to be sustained by household spending and further boosted by a pick-up in investment. Headline inflation has fallen below the 2% inflation target, but is projected to slightly exceed it by late 2015 as economic slack is taken up.
With the unemployment rate having fallen below 7%, the Bank of England has shifted towards a more flexible form of forward guidance. Policy interest rates are expected to begin to rise in 2015 as economic slack narrows and inflation pressures gradually build up. Further prudential regulation measures should be considered to ensure a balanced housing market recovery. Fiscal consolidation of about 1% of GDP should be implemented in 2015, as planned, to strengthen public finance sustainability.
Note: All data definitions based on internationally comparable standards and may differ in specific cases from common national definitions.
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