In the group’s latest Fundamentals presentation, Drayson pointed out that while wage growth has been elusive in 2014, next year should prove a turning point as the US reaches full employment.
“We expect the first rate hike in the US to be around June, but with inflation likely to only slowly edge back up towards target, policy normalisation can proceed gradually.”
In the UK LGIM expects growth to cool only a little on the back of macroprudential tightening.
Drayson said: “However, with inflation likely to remain low, the Bank of England will be able to delay the first rate hike for longer, which alonf with rising employment and signs of wage growth, provides a positive environment for the UK consumer.”
Indeed, the consumer more generally is likely to be one of the big winners in 2015, Drayson says, because falling energy and food prices will add money to his or her pockets, while a slow uptick in wages should do something similar.
Risks
There are, however, risks to the outlook, LGIM said, as global debt levels remain a concern and could constrain growth, as will deteriorating demographics and a downshift in productivity.
Disinflationary forces dominated 2014, Drayson added, despite a tightening in global labour markets.
“While we see the decline in commodity prices as supportive for real incomes and global consumption, there is a risk further falls undermine inflation expectations and lead a self-fulfilling drift towards deflation.”
