EY ITEM Club upgrades GDP forecasts
THE positive outlook for the housing market, improving consumer confidence and rising investment and exports have sparked an upward revision to the EY ITEM Club’s latest growth forecasts for the economy, released today.
The EY ITEM Club’s autumn forecast now expects GDP to reach 1.4% this year and 2.4% in 2014 – up from the 1.1% and 2.2% respectively that were predicted last quarter.
And it says the most significant boost to UK growth will come next year, when the resurgence of business investment and exports finally kicks in.
With the economy on a more sustained path of recovery, the Bank of England signalling that interest rates aren’t about to rise anytime soon, and the Eurozone crisis in remission, the EY ITEM Club expects business investment to increase by nearly 7% in 2014 and 9.4% in 2015, after falling by 5.6% this year.
An improving outlook for world trade, particularly in key markets such as the US, Europe and China, will also see exports grow by 2.5% this year, rising to 5.3% in 2014 and 6% in 2015.
Simon Allport, North West Senior Partner at EY, said that while business confidence has improved it has yet to be translated into capital spending: “After the slowest recovery from a recession in generations, it’s perhaps unsurprising that business investment to date has been cautious. But with the recovery now gathering pace, staying in ‘wait and see’ mode is no longer a viable option.
“With the collapse in investment and M&A in recent years and an increasing reliance on temporary and part-time staff, businesses will need to act swiftly to avoid capacity shortages and to be in a position to drive export growth,” he added.
EY believes the Government’s Help to Buy Mortgage Guarantee Scheme will lead to a rapid improvement in the housing market.
More than a million people are expected to move home this year alone, while investment in new housing projects is set to increase by 7.5% next year and an additional 10% in 2015, predicts the report.
The EY ITEM Club’s autumn forecast says the boost to housing demand will have a knock on effect on house prices, rising by 3.5% this year and 6.6% in 2014.
However, it says that fears of a housing bubble are “unfounded and premature”.
Prof Peter Spencer, chief economic adviser to the EY ITEM Club said: “The Government’s efforts to revive the mortgage market have been well-timed and targeted, and will benefit most regions in England.
“Despite the recent criticism of these initiatives, the chances of seeing another housing market bubble are extremely slim. House prices and transactions are only just recovering from the credit crunch and will be paltry in comparison to those of a decade ago. Household finances are also in much better shape, with debt to income ratios now at sustainable levels.”
According to the report, the UK’s short term growth will continue to be fuelled by the consumer. The recovery of the housing market, combined with falling unemployment, rising real incomes and improving confidence levels, will help to keep the tills ringing on the high street.
Despite only modest increases in disposable incomes of 0.2% this year, consumer spending is forecast to grow by 1.6% before rising to 1.9% in 2014.
