The unemployment rate of the U.K is already more or less back to 'normal' and we think that the labour market will tighten further going forward, which would lead to even higher wage growth. The U.K. was back in deflation in September as CPI inflation declined to -0.1% y/y, from 0.0% y/y in August.
"Unless a further drop is seen in commodity prices, we think inflation hit the bottom in September and we expect CPI inflation to pick up close to 1% in January 2016, when the base effects from the drop in oil prices in H2 14 begin to drop out", argues Danske Bank.
Private consumption is supported by a combination of higher employment, positive real wage growth for the first time since 2009 and high consumer confidence.
"The growth of the economy is expected to be driven mainly by domestic demand and, in particular, by private consumption. Therefore, the U.K. economy is expected to continue to grow at a decent pace in the coming quarters", says Danske Bank.
