Faster economic growth forecast for 2019

09 November 2018

  • Strong economic growth in late 2018 expected to continue
  • WBSFS finds GDP could rise by more than two per cent 
  • Growth likely to exceed "pessimistic" Bank of England prediction
  • Risk that inflation will exceed three percent in 2019

The Warwick Business School Forecasting System calculates GDP will continue to grow during 2019 after the lastest Office for National Statistics (ONS) estimate confirmed 'strong economic growth' in the latter half of 2018.

The ONS first estimate of GDP revealed a 0.6 per cent growth for the third quarter of 2018. This means GDP has risen by 1.5 per cent during the last four quarters.

Using this estimate, the WBS Forecasting System (WBSFS) expects economic growth to continue through 2019. It predicts a nearly one-in-two chance the economy will grow more than two per cent, while there is little more than a one-in-ten chance of 'slow' growth of less than one per cent.

This estimate exceeds the more pessimistic predictions made by the Bank of England and the International Monetary Fund (IMF).

Inflation is likely to remain between two per cent and three per cent in 2019, but there is a one-in-four chance it will exceed three per cent, compared to less than a one-in-twenty chance that inflation falls below one per cent.

The Model: Favourable outcomes are green, with unfavourable ones coloured red.

Professor Ana Galvao, of the Macroeconomic Policy and Forecasting Network at WBS, said: “Conditioning on the ONS’s latest GDP growth estimates for 2018Q3, the WBS forecasting system expects to see this recent growth continue through 2019.

"There is nearly a one-in-two chance of growth greater than 2% in 2019, and only a little more than a one-in-ten chance of ‘slow’ growth of less than 1%.”

Professor James Mitchell, of the Macroeconomic Policy and Forecasting Network at WBS, added: “The Bank of England, IMF and the HMT Panel of Independent Forecasters are all more pessimistic than the WBS Forecasting System about GDP growth prospects in 2019.

"While uncertainties remain, our forecast is that it is more likely than not that GDP growth in 2019 exceeds the central expectations of the Bank of England, the IMF and the HMT Panel of Independent Forecasters.”

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Professor Anthony Garratt, of the Macroeconomic Policy and Forecasting Network at WBS, said “While the most likely outcome in 2019 is inflation remains between 2% and 3%, there are elevated upside risks. There is around a one-in-four chance that inflation exceeds 3% in 2019 and less than a one-in-twenty chance that inflation falls below 1%.”

Instead of using a single forecasting model or relying on the judgement of the Bank of England’s Monetary Policy Committee the WBSFS combines five state-of-the-art econometric models to produce judgement-free macroeconomic forecasts for UK GDP growth and CPI inflation. These forecasts are updated each quarter to reflect the latest data.

By using model averaging and following well-established methods in statistics, meteorology and economics, the WBSFS takes a weighted combination of each models’ forecasts, where higher weights are awarded to models that show the better recent forecasting performance. The WBSFS quantifies and communicates the forecast uncertainties by producing probabilistic forecasts. 

The WBSFS is an intitiatie to place impartial, academically robust macroeconomic forecasts in the public domain. For more information about WBSFS its predictions visit its website.

Professor James Mitchell teaches Managing in a New World on the Full-time MBA and Economics of the Business Environment? on the Executive MBA and Executive MBA (London)

Professor Anthony Garratt teaches Economics in the Global Environment on the MSc Management course and on the Executive MBA and Empirical Applications in Macro, Financial and Energy Economics? on the MSc Finance.

Professor Ana Galvao teaches Economics for Management and Business and Forecasting for Decision Makers on the MSc Management course.

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