Talking Economics: Eurozone forecasts on track
The European Central Bank's injection of stimulus and the fall in energy prices continue to provide support for the eurozone, but UK growth is likely to be hurt by austerity measures following the Conservatives' win in the May general election.
Eurozone forecast: small upgrades
We have nudged up our growth estimates for the eurozone, but mostly due to base effects and better-than-expected recent data.
We expect growth to rise from 0.9% in 2014 to 1.4% in 2015 (previously 1.3%), and then increase further to 1.6% in 2016 (unchanged).
In terms of inflation, less deflation in the first quarter helped lift the annual average, while a slightly faster-than-anticipated rise in global energy prices will also help.
We expect 2015 inflation of 0.2% (from 0.1% previously), with the 2016 forecast unchanged at 1.2%.
In terms of monetary policy, we continue to expect the European Central Bank to buy €60 billion of assets per month until September 2016, with interest rates kept on hold.
UK forecast: rate hike delayed
The UK growth forecast has been downgraded for 2015 from 2.6% to 2.2%, partly due to the much weaker-than-expected outturn in the first quarter, but also due to negative base effects caused by an upward revision to 2014.
We have lowered our inflation expectations from 0.6% to 0.4% for 2015 due to weaker core inflation (which is partly as a result of the strength of the pound versus the euro helping to lower import price inflation).
The Bank of England (BoE) will not be able to raise interest rates while inflation is still below 1% ( the BoE's lower bound of its target).
So we have pushed out our expectations for the first rate hike from November 2015 to February 2016. We forecast the BoE to then hike each quarter by 0.25%, taking the policy rate to 1.50% by the end of 2016.
Important information: This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy. The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell. The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors. Issued by Schroder Unit Trusts Limited, 31 Gresham Street, London, EC2V 7QA. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.