"The bulk of the growth came from the services-side of the economy, but the latest purchasing managers survey data shows that manufacturing is starting to improve as well."
Lyons says economic growth is a function of three things: “fundamentals, public policy and confidence, and of those three, confidence is the hardest to achieve. I can understand the political reasons, but the current government approach may not be helping confidence.”
Despite that, he says: “By the time we get to the budget, the OBR may be upgrading their growth forecasts and leaving much more headroom for the chancellor.
"I don’t think we will have anything like austerity. I was opposed to much of the austerity that happened last time; I felt we should have taken the opportunity to borrow at very cheap rates, now borrowing rates are higher.”
He expects UK inflation to “settle” at a rate higher than many had become used to, and higher than the BoE’s 2 per cent target.
Lyons expects the inflation rate to settle at between 2 and 3 per cent.
He says: “Right now Britain is a low-growth, low-wage, and low-productivity economy, so a strategy that goes for growth is needed. But the options are more constrained now, so it looks as though we will get higher taxes.”
Rates and measures
Beck-Friis says investors may have to get used to UK economic data being more “volatile” than that of the Eurozone and US, “because the UK is a smaller economy so any shocks have a greater impact.
"UK economic growth at the current level is well above trend and above the trend rate for developed economies, so I expect it to move back towards trend. Really the Eurozone is only at trend, and the US as well."
Dickens says that most economists' models for the UK economy “went haywire” in the years following the Brexit vote, but she feels that “people have started to get used to the new way of doing things, so distortions in labour markets are being eroded, and the usual economic relationships that work within economics are starting to work again.”
And so too interest rates.
Dickens believes the BoE will “look through” the growth figures and the persistent nature of the core inflation data and continue to cut inflation.
Core inflation strips out items such as fuel from the headline inflation number as fuel costs tend to be exceptionally volatile, so one particular month of data could be skewed by fuel costs, stripping out those therefore should provide a more reliable and consistent measure of inflation.
Core inflation in the UK is currently 3.3 per cent, while the headline rate of inflation, which includes those volatile items, is 2.2 per cent.
