Rate hike expected in Q1 2018: NIESR

This will be the first policy rate increase in nearly eleven years. NIESR says "the rate increase should not be seen as a tightening in policy, but instead as a modest withdrawal of some of the additional stimulus that was injected into the economy after the 2016 EU referendum".

Its forecasts for GDP growth remain unrevised at 1.7% this year and 1.9% next year. According to NIESR's forecast, 2017 "will mark the trough for GDP growth".

It also predicts CPI inflation to peak at 3.0% in the last quarter of this year before easing back to the target rate of 2% in the final quarter of 2019.

In its forecast, the fiscal deficit is eliminated in 2022 and the debt-to-GDP ratio peaks in 2018/19.

Its forecast continues: "Developments in the labour market remain puzzling. The employment rate has risen to a record high of 74.9% in the three months to May 2017, the unemployment rate has dropped to 4.5%, the lowest since 1975, yet wage growth remains muted. Average weekly earnings adjusted for inflation dropped by 0.7% in the three months to May compared to the same period last year.

"Our forecasts are conditioned on a return to meaningful productivity growth from 2018 onwards. Failure of such growth to materialise presents a downside risk to our forecast."