Cambridge Econometrics today published its latest edition of ‘Industry and the British Economy’, containing detailed macroeconomic and industrial forecasts to the year 2015.

The report says the UK GDP is expected to grow by 2% in 2003 and 3% in 2004 outstripping growth in the major euro-zone economies.

These are the headlines from the report, full details can be seen at Cambridge Econometrics

• Households are expected to reduce borrowing and curb spending in 2003, but GDP growth will be sustained by government spending.

Domestic demand is forecast to grow by around 2¾% in 2003, a slight pick-up compared to 2½% growth in 2002. Household spending is expected to slow to the more sustainable rate of 2½% as house-price inflation slows and equity markets remain subdued.

• The UK economy is expected to grow at a faster rate than the major euro-zone economies in 2003.

Growth in UK GDP of about 2% in 2003 would leave the UK economy one of the fastest-growing among the G7, and the fastest among major European economies. GDP growth in the euro-zone is expected to remain subdued in 2003, with the largest economy, Germany, likely to show very little growth this year.

The outlook in France has also worsened as the unemployment rate has started to edge up and households become more concerned about future job security, while the short-term outlook for Italy remains bleak, with little sign of domestic or external recovery until next year.

In the US, the weakness of the labour market and continued volatility of stock markets undermined consumer confidence at the beginning of 2003 but a recovery is expected in 2003H2, and so growth in the US is expected to be faster than in other major economies.

• GDP growth is expected to accelerate in 2004 as household spending growth picks up and investment recovers.

Household spending growth is expected to accelerate a little to 3% in 2004 as incomes are boosted by a recovery in average earnings inflation, but some of this effect is offset by a recovery of the saving ratio as households continue to adjust their debt position.

• Manufacturing output growth should return in 2004 as growth in the world economy picks up

Manufacturing output has fallen further in 2003, although the rate of decline has slowed. Manufacturing output should begin to recover in 2003H2 if confidence in the global economy rises: the swift resolution of the war in Iraq has removed one destabilising factor.

Nevertheless, growth is likely to remain sluggish in the key euro-zone export markets of France, Germany and Italy. Consequently, export growth to the euro-zone is expected to remain weak throughout the remainder of 2003, despite the euro’s recent gains against the dollar and sterling, which have improved the price competitiveness of UK producers.

Overall, we expect manufacturing output for 2003 to decline slightly, by ¼%, before returning to growth of around 2% in 2004, on the assumption that growth in major economies recovers.

• Prospects for market services are expected to improve in 2004 and 2005 as the global economy recovers.

Consumer services are likely to be constrained over the rest of 2003 and the first half of 2004 as the level of household indebtedness slows consumer demand.

As the global economy and equity markets recover, market services and especially professional services are expected to benefit more than other sectors of the economy.

The forecast is for some 4½% growth in output in 2004, up from the expected 3% growth out-turn for 2003, and a further acceleration in 2005.