• Following growth of 3.4 per cent in 2014, the world economy will grow by 3.3 per cent in 2015 and 3.6 per cent in 2016.

• Growth was weaker than expected in late 2014 and inflation has fallen further below target in almost all developed countries;

• But a sustained lower oil price, if it does not exacerbate the threat of deflation, should provide a significant boost to growth in countries that are net oil importers and for the global economy.

• The economy will grow by 2.9 per cent in 2015 and 2.3 per cent in 2016.

• Unemployment will drop to 5.2 per cent by the end of this year.

• CPI inflation will average about ½ per cent, well below target, this year; we do not expect interest rates to rise until the beginning of 2016.

The production of this forecast is supported by the Institute's Corporate Members: Bank of England, HM Treasury, Mizuho Research Institute Ltd, Office for National Statistics, Santander (UK) plc and by the members of the NiGEM users group.

This paper examines the outcomes for changes introduced by the UK Coalition government in 2010. The Office for Budget Responsibility (OBR) is generally regarded as a success, and should become a permanent part of fiscal policymaking. The form of the primary fiscal mandate, involving a five-year rolling target, appears to be a sensible way to shape fiscal decisions when monetary policy is able to stabilise the economy. Unfortunately it was introduced, along with a five-year programme of severe fiscal consolidation (austerity), while the economy was in a liquidity trap. The OBR estimates austerity reduced GDP growth by 1 per cent in both 2010–11 and 2011–12, and monetary policy was unable to offset this. For the Liberal Democrats a misreading of the Eurozone crisis may have been responsible for this mistake, but for the Conservatives this mistake appears to derive from an unconventional view that the liquidity trap is unimportant.

This paper reviews UK supply-side policies since 2010 in terms of their impact on growth and considers medium-term growth prospects in the context of the puzzle of disappointing post-crisis TFP performance. It is argued that there is no reason to believe that growth prospects have deteriorated significantly compared with the pre-crisis period. Changes in policy under the Coalition government are unlikely to have made a big difference to growth potential. On the one hand, this means opportunities for radical reform have been ignored; on the other hand, there has been no repeat of the 1930s’ debacle.

The ‘productivity puzzle’ – the substantial drop in productivity in the UK since the onset of the financial crisis in 2008 – has exercised economists and policymakers alike. The loss in productivity levels, mainly output per hour, should have been restored by now and the trend growth should have been recovered, or even exceeded. Instead after a very sharp fall, much faster than many of our competitors, it has only recently started to rise again, but at a stubbornly slow rate and at the time of writing stood some 2 per cent below its pre-recession levels. So although we are likely to get back to where we were pretty soon, it is possible that the gap, with where we should have been on pre-recession trends, continues. The Bank of England calculates this gap could stay as high as 16 per cent or even widen if the rate of productivity increase does not return to normal. This is bad for the economy and especially bad for innovation, investment, growth and competitiveness. This paper examines possible explanations and offers some possible answers. It sides, in the end, more with those that argue that demand deficiency looks like being at least a part of the explanation, but acknowledges that changes in the structure and destination of employment, since the recession started, have also played a role.

This article summarises the 2010–15 Coalition government's education policy, contrasting their attempts to liberalise education markets with the desire to impose a highly traditional curriculum. The government's quite radical reforms have not been easy to implement, taking place against severe budgetary constraints and a minority Coalition partner with ambitions to improve the educational outcomes of children from low income families. It could be argued that the reforms have been successfully implemented, and there is little prospect of wholesale reversal by any future government. However, their combative approach to reform leaves a demotivated teacher workforce, a possible impending teacher recruitment crisis as the economy recovers, and a tangled web of accountability structures that will need to be resolved.

The Coalition's record on working age social security is reviewed under the headings of continuity (with the policies of the previous government), retrenchment and reform. Under continuity, the Coalition's decision to proceed with the previous government's planned reassessment of incapacity benefit claims was a notable policy mistake which led to the near-collapse of the assessment system by 2014. Retrenchment measures are dominated by benefit uprating changes which, along with measures targeting higher-income groups, have been less regressive than alternative approaches to expenditure reduction. However these changes were accompanied by a number of smaller-scale retrenchment measures, with substantial cumulative impacts on income. Retrenchment has thus been less regressive than it might have been but more regressive than it needed to be, taking the retrenchment targets as given. Policy failure and exogenous economic factors have offset the effect of retrenchment measures, with the result that expenditure by 2014/15 was little different to that planned in the Labour government's last budget. Full implementation of major reforms has been deferred to the next parliament. The main achieved policy change has been an unprecedented tightening of the benefit sanctions regime.