Chris Dillow, of the Nomura Research Institute, said: ``1995 may see the beginning of the end of non-inflationary growth.'' The economy will grow by 2.8 per cent this year, compared with the Treasury's forecast of a 3.25 per cent rise in national output.
He argues that nothing has changed fundamentally in the economy. As memories of the recession fade, wage claims will go up and productivity gains will end.
Mr Dillow says that the role of investment in this economic cycle has been overdone, with growth in consumer spending accounting for almost all of the rise in output in the first two years of the recovery. Higher wages and some recovery in the housing market will help fan consumer spending again.
The increase in labour costs and higher factory gate and input prices already in the pipeline will lead to higher inflation. Nomura predicts retail price inflation will rise to 5 per cent in 1995.
At a time when most City economists agree more or less agree with the Treasury's prognosis that another year or two of well-balanced non-inflationary growth are on the cards, these predictions stand out for their relative pessimism.
The "feel good factor" is still missing from the economy, according to a NOP survey out today.
Only 29 per cent of adults feel richer than they did five years ago and only 12 per cent feel very secure in their jobs.Reuse content