ITEM Club points to a grim year

A LEADING economic forecasting group has painted a bleak picture of the UK’s prospects.

The Ernst & Young ITEM Club – which uses the Treasury’s own model to measure the economy – predicts soaring unemployment and the largest contraction in GDP since 1946.

The ITEM club forecasts a GDP contraction of 2.7% this year with a further 0.5% decline in 2010. It said unemployment will rise to more than 3.25 million by the end of 2010 and consumer spending will decline by 2.5%.
 
Its report said inflation and interest rates will both stay close to zero, benefiting those on tracker mortgages and pensioners, but giving little assistance to a beleaguered housing market which ITEM believes has a further 22% to fall over the next 18 months.
  
Peter Spencer, the ITEM’s chief economic advisor, said: “It is easy to criticise and conclude that none of the government’s policies are working.

“However, we must not lose sight of the fact that they have prevented the collapse of the monetary system as we know it. But, more needs to be done urgently otherwise the flow of credit will remain frozen and the economy will remain in recession.”

With a stuttering banking system and the UK economy heading for a deep recession, business sentiment will continue to deteriorate said the ITEM club which expects business investment to fall by nearly 16% in 2009, with a further drop of almost 6% in 2010.

Mr Spencer added: “Precautionary behaviour has begun to spread with corporates planning for the worst. Investment intentions and recruitment plans have collapsed. Company treasurers are very worried about what lies around the corner in 2009 and prefer to be sitting on cash.”

Meanwhile, a survey of 3,400 firms by Lloyds TSB has found business confidence in the North West has dropped to its lowest level for 16 years.