The Ernst & Young Item Club, which is one of the most
respected independent economic forecasting groups that uses the same economic
model as the UK’s Office for Budget Responsibility (OBR) and The Treasury, has
good news in its latest quarterly forecast for the UK economy.
They believe - although the latest GDP figures (released on
July 25th) for Q2 paint a far gloomier picture and some forecasters are much
less positive - that it will enjoy an “Indian summer” following its dire
performance in the first half of the year.
Whilst they predict the rate of inflation to continue to
decline to 1.7% by year-end and see growth for the whole of 2012 remaining
flat, they go on to forecast growth in 2013 to reach 1.6% and by the end of
2014 to see a rate of 2.6%.
In addition, real disposable incomes should rise by 0.4% in
2012 and in 2013 by 1.5%.
The chief economic adviser to the Item Club, Peter Spencer,
was quoted as saying: “Spiralling inflation has cut real wages by 7.5% over the
last four years, but the squeeze is almost over.
“Inflation is now coming back to heel, helped by the
Chancellor’s decision to postpone the increase in fuel duty, falling energy and
commodity prices, plus tax changes dropping out of the calculation.”
It is widely believed that any growth in the UK economy will
be export-led, as most households appear determined to pay down personal debt,
rather than to consume goods.
Having said this, UK unemployment will remain high, possibly
reaching 8.6% by the end of 2012 and increasing to 8.7% in 2013.
On the positive side, the report believes that business
spending will increase by 3.4% in 2012, although it is unlikely to reach the
levels achieved pre-recession till at least 2015.
Mr Spencer went on to conclude: “However, a resolution of
uncertainty about the euro could transform the outlook, pushing company
spending up much faster than forecast.”
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