Economist John Ashcroft gives his economic predictions for 2016

Top economist John Ashcroft has given his predictions for 2016.

John, who is the chief executive of pro.manchester and a visiting professor at MMU Business School, believes the UK economy will grow at the same rate as 2015 and expects inflation to be around 1% to 1.5%.

Here are his views in full:

Growth
We expect the UK economy to grow by around 2.5% in 2016 following a similar level of growth in the prior year.

Output growth will be determined by service sector activity with a slightly better contribution from construction and manufacturing.

Household consumption with continue to drive the recovery with a more significant contribution from investment – 2016 will continue the years of the LILIES with low inflation, low interest rates and an earnings surge pushing household spending, retail sales, car sales and housing transactions.

Investment will also improve in 2016. Bear in mind almost two thirds of investment is property related (housing and commercial real estate).

There should be no real fears for output growth as a result of the post recession, investment slow down.

The fixed asset capital stock (plant and machinery) has returned to pre recession levels, with no limits to expansion as the result.

Government expenditure will remain subdued. Export growth may increase as world markets recover.

Our models continue to reflect a significant level of import dependency for any export expansion. Hence, there will be no re balancing of domestic demand or total final expenditure as a result.

We expect the trade in goods deficit in 2015 to be £124.2 billion flattered by a £3 billion oil price effect. In 2016, the trade in goods deficit will rise to over £127 billion off set in part by a £93 billion plus surplus on services.

The overall trade in goods and services deficit at less than 2% of GDP will not be a cause for concern. The current account deficit is set to moderate as overseas investment returns improve. This should allay fears of a balance of payments constraint to growth over the medium term.

Inflation
Service sector inflation will close the year end 2015 at around 2.5%. Goods inflation has been flattered by low oil, energy, commodity and food prices prices with an average rate of -2% in the final quarter of the year.

By the end of 2016 most analysts now expect inflation to be around 1% to 1.5%. A fair assumption, assuming no radical reversal of Saudi Policy on oil prices. Were that to happen, the inflation outlook could change quite dramatically as prices firm in commodities and food.

Employment and Earnings
Employment growth will continue with current levels for vacancies and claimant count now at pre-recession levels. Earnings growth will continue as recruitment difficulties in construction and the service sector increase.

Borrowing Figures
Government borrowing figures will improve as the economy continues to grow. Low inflation is creating a fiscal drag on VAT receipts despite strong retail sales volumes. The OBR targets over the next two years may be a challenge as a result but the official targets are broadly within reach.

Interest Rates
The Fed has made the first move in the escape from Planet ZIRP. We expect the MPC to follow in less than six months with March or April favourite. By the end of the year rates will be around 1% assuming no radical change in the inflation outlook.