16/07/2012 17:27
The UK economy is set to return to growth on the back of an 'Indian summer', according to the Ernst and Young Item Club's quarterly forecast.
Inflation is expected to decline to 1.7% by the end of 2012 (from 2.8% in May), while consumer spending will remain flat, the forecaster said.
Looking further ahead, it predicts the economy will grow 1.6% in 2013 and 2.6% the year after.
Meanwhile, real disposable incomes are set to climb 0.4% this year and 1.5% in 2013, although this is expected to be used to reduce personal debt, which the Chief Economic Adviser of the Item Club, Peter Spencer, believes means exports are the solution to return the UK to sustainable growth.
Spencer said: "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.
"The prospect of a durable UK recovery remains heavily dependent upon confidence in financial and business communities and it is going to take time to re-build.
"However, a resolution of uncertainty about the euro could transform the outlook, pushing company spending up much faster than forecast."
Business spending is planned to grow 3.4% this year but does not see a return to pre-recession level for three years.
Meanwhile, the Item Club also estimated that the unemployment rate could still be reach 8.6% by the end of the calander year, and could even hit 8.7% next year.
Inflation is expected to decline to 1.7% by the end of 2012 (from 2.8% in May), while consumer spending will remain flat, the forecaster said.
Looking further ahead, it predicts the economy will grow 1.6% in 2013 and 2.6% the year after.
Meanwhile, real disposable incomes are set to climb 0.4% this year and 1.5% in 2013, although this is expected to be used to reduce personal debt, which the Chief Economic Adviser of the Item Club, Peter Spencer, believes means exports are the solution to return the UK to sustainable growth.
Spencer said: "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.
"The prospect of a durable UK recovery remains heavily dependent upon confidence in financial and business communities and it is going to take time to re-build.
"However, a resolution of uncertainty about the euro could transform the outlook, pushing company spending up much faster than forecast."
Business spending is planned to grow 3.4% this year but does not see a return to pre-recession level for three years.
Meanwhile, the Item Club also estimated that the unemployment rate could still be reach 8.6% by the end of the calander year, and could even hit 8.7% next year.
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