In this latest issue of the Deloitte Economic Review, our Economic Adviser, Roger Bootle focuses on the possible meltdown of the UK economy.
This issue of our Review comes to you after another successful year for the UK - the 13th of continuous economic expansion. What's more, this was achieved against a testing global background. But Roger Bootle, our Economic Adviser, asks whether 2005 might be the year when it all starts to go wrong.
Roger notes that this new golden age has been achieved at the expense of a build-up of some major imbalances in the economy, which he believes are now set to unwind. And over the next year or so it is set to drag the main pillar of economic growth - household spending - down with it. On top of that, the labour market may soon become less supportive while the prospect of higher taxes, to plug the hole in the public finances, will be a further constraint on growth. What's more, a weaker global environment will hold back any recovery in UK exports.
Nonetheless, Roger believes a continuation of low inflation will open the door to a 14th year of continuous growth. For it will enable the Monetary Policy Committee to cushion some of the blow to the economy by cutting interest rates to 4% by the end of this year and to 3.5% by the end of next year - or possibly even further. But despite this, economic growth is set to slow quite sharply. So although 2005 may not be the year when things go completely wrong, it will probably mark the start of a more difficult period for the UK economy, before the various positive forces at work in the economy reassert themselves in a couple of years' time.
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