EY Item Club: UK economy to grow 2.8% in 2015 as 'noflation trumps politics'

The political uncertainty in connection with the upcoming general election would not hurt the UK economy, instead favourable inflation readings and improvements in the eurozone would help boost the UK gross domestic product (GDP) by 2.8% in 2015, according an EY Item Club report.

The report also predicts a 3.0% GDP growth in 2016, up from 2.9% estimated previously. The forecast is more positive than that from the Office for Budget Responsibility.

"The economy is taking the general election in its stride as 'noflation' trumps politics," said Peter Spencer, Item's chief economic adviser.

"The eurozone recovery is bedding in and completes the positive UK growth picture that we anticipate for 2015 and 2016."

Consumers in the UK have been supported by a strong labour market and benign inflation and interest environment.

"With real incomes up 3.7% this year, the forecast sees consumption growth of 2.8%, with strong growth over the medium term sustained by the buoyancy of income rather than borrowing," the report said.

In addition, the eurozone economy has staged an impressive recovery, and the pound has reversed the steep fall against the euro seen in 2007 and 2008.

The report noted that the quantitative easing (QE) programme in the eurozone is helping the region's recovery by depressing the euro and long-term interest rates, as well as boosting liquidity and money supply.

The improvements in the eurozone would boost trade with the region, and overall exports would rise by 5.9% in 2015 and 4.9% in 2016, according to the report.

"Judging by the strength of the storms that hit us in 2010-12, these favourable developments should make the economy robust enough to ride out political shocks from the UK election," it said.