Financially speaking

It’s that time of the year again, the leaves have started falling, Wales have come agonisingly close to beating Australia, people are getting into the Christmas spirit and once again we are talking predictions for interest rates for next year.

In light of recent evidence that the economic recovery is starting to run out of steam, this has become even more of a frenzied area of debate among economists than usual.

So where do we stand now?

There still appears to be an element of slack in the labour market, despite decreasing unemployment figures.

This will continue to keep real wage growth subdued as productivity per head continues to increase in the early part of next year, which should keep inflation low.

Expect the issue of real wages and the cost of living to be a political football in the run-up to the election.

Financial markets are braced for an increase in interest rates early next year with most observers expecting any changes in rates to come in the same month as the Bank of England’s Inflation reports – either February, May, August or November.

Of course there is a general election thrown into the mix so the timing of the actual rate rise may be moved around for political reasons.

Increases in interest rates could have a negative impact on consumer spending, which remains integral to economic growth. The Bank of England will need to be convinced that a reduction in disposable income won’t have too much of a negative impact on consumer spending.

However, as the old saying goes, weather forecasters were put on this planet to make economists look good. In light of the announcement of the MET offices’ purchase of a shiny new £97m forecasting supercomputer many economists will be getting nervous.