Some say the best antidote to the dreary days of early January is the New Year horoscope. Worries about the post-Christmas overdraft and expanding paunch are soothed by a look at forecasts for love, money, and career advancement. Political and economic pundits have jumped on this soothsaying bandwagon. So, not to be left out, here is my version – Old Philpott's Almanac for 2005.
The early months will be dominated by the build-up to a May General Election. The Conservatives and Liberal Democrats will perform much better than expected, but a somewhat chastened Tony Blair will remain in Downing Street. Ministers will proclaim a 'radical third term' before proceeding to carry on with business as usual, with incoming Chancellor of the Exchequer, Alan Milburn, promising to build on the legacy of his predecessor, the new foreign secretary Gordon Brown.
The economy Brown hands over will still be performing adequately, though not quite as well as Brown forecasts in his farewell Budget in the spring. Consumers will continue to rein back on spending as the housing market cools further, while the expected export recovery will be affected by the impact of a weak dollar on the strength of the euro zone economies. However, this dampening effect on demand will be offset by continued strong growth in public spending and investment, and an ongoing improvement in business investment.
Economic growth will be slower than in 2004, but still respectable at around 2.5 per cent for the year as a whole. As the pace of growth slows, the economy will further rebalance towards investment and away from consumption. But unemployment will stay low, and employers will continue to face a tight labour market.
Although the Chartered Institute of Personnel and Development's (CIPD) quarterly HR trends and indicators survey finds employers generally sanguine about the scale of increases in wage costs in 2005, some additional wage inflation seems likely, not least because higher inflation will be affecting wage bargaining. Inflation, as measured by the Consumer Prices Index, will rise towards the Government's target of 2 per cent as spare capacity in the economy is absorbed. Living costs, as measured by the Retail Prices Index - which has the strongest influence on wage bargainers - will increase by around 3.5 to 4 per cent.
Employers in all sectors will be looking to rais