As December retail sales numbers support economic growth in the UK, Investec's Philip Shaw says expectations of 2.5 percent growth in 2014 are extremely well-founded.

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LONDON, ENGLAND, UNITED KINGDOM (JANUARY 17, 2014) (REUTERS - ACCESS ALL)

1. INVESTEC CHIEF ECONOMIST, PHILIP SHAW, SAYING:

'(ANCHOR ASKING QUESTION: Do you think the markets are getting ahead of themselves in terms of UK growth, in terms of the strength of this growth, how sustainable it is?)

No, I don't. Certainly in terms of the economy widely, expectations of growth about 2.5 percent I think are extremely well-founded. Our own GDP forecast for 2014 is 2.7 percent but we view the risks to be tilted to the upside. What we're a little bit more reticent about is the interest rate outlook and the yield curve has been steepening over the last couple of months. Will we see an interest rate increase ahead of the general election in Q2 2015? Our central view is probably not. So I think that's something to watch.

(ANCHOR ASKING QUESTION: What about long-term effects of consumer spending? And I mean, falling savings rate, stagnant wages, and what this says about the consumer? What it says 6, 12, 18 months out?)

Well here again, we're relatively optimistic about what's going on in the consumer sector because although the official average earnings numbers show that pay growth is running at about 1 percent a year, what we're also looking at is a big increase in employment which is supporting the broad income background. I'm sure that the saving rate fell a little bit during the third quarter but it's still a little bit above five percent. So, our view is that consumer spending can still run a little bit above nominal income growth and the saving rate is still at respectable levels.

(ANCHOR ASKING QUESTION: And what's Carney- just to finish up with, Philip, what's Carney's message going to be for the first two months of this year? Is it going to be more of the same, is it going to be a little bit more backpedaling, or what- I mean, I don't want to sound unfair when I say that, but what is his message going to be to the market?)

Well, I think broadly, the message is still going to be that an interest rate increase is a long way off. And to put that message across convincingly, the Bank of England has to change its threshold base interest rate guidance. So what we expect technically is some modification of the guidance, namely that the seven percent unemployment threshold may well still be there. But there will be some qualitative adjustment to it, perhaps with some comments on, well, we need to see higher pay growth before we seriously entertain the idea of a rate increase.'