"The UK seems to be operating in a much higher gear than the rest of Europe, leading us to revise up our forecasts for growth, and bring forward our forecast for the first rise in interest rates,” Zangana said. Strong growth in household consumption and more recently, business investment are both notable he added.
Sharp falls in unemployment also factor into the picture with a rapid drop to 6.8% over the first quarter of 2014 compared to 7.2% in the previous quarter and 7.8% a year earlier.
With all this being so Schroders has also raised its 2014 growth forecast from 2.6% to 2.9%, and its 2015 call from 2.1% to 2.4%.
As indicated by recent comments from monetary policy committee member Martin Weale, there appears to be gathering momentum behind a move by Mark Carney and his colleagues to take action sooner than later.
“The debate seems to be heading towards the notion that an earlier start to the hiking cycle will allow the Bank of England to ease the squeeze on the household sector by hiking more slowly,” noted Zangana. “It should take as much time as possible in normalising rates,” he added.
Zangana also that ‘more hawkish’ members of the MPC including Weale may well call for a rise before August 2015 however at this point at least, he believes they will not hold sway over the rest of the committee. When the first rise does in fact come, it is unlikely to be any more than a quarter point, in his view.
