‘Pain behind us’ says ITEM chief

THE chief adviser to a leading economic forecasting group believes “most of the pain is behind us”.

Speaking to TheBusinessDesk Peter Spencer, chief economic adviser to Ernst & Young’s ITEM Club, said UK GDP should contract by 4.5% this year – the worst slump since 1945.

But he stressed most of this fall in output had already happened.

“Output fell sharply in the first half,” said Mr Spencer. “The forecast for GDP is flat over the next six months having fallen dramatically. The forecast for the next year is a gradual increase.”

The latest report from the ITEM Club – which uses the Treasury’s own model to measure the economy – predicts GDP will grow by 0.5% in 2010.

Mr Spencer admitted there were “all sorts of worries” over the future of the economy and conceded that he was more negative than three months ago.

“The outlook was brightening quite nicely then. The capital markets had opened up, the banks were saying they were beginning to lend again, the housing market was stabilising. It was looking more hopeful.

“But I’m afraid our latest assessment is these hopes have not really been fulfilled. The follow through has been quite disappointing and the expectations have run well ahead of reality.”

Mr Spencer identified the lack of lending as the top barrier to recovery and said the number of banks that have told the Bank of England they will resume corporate lending has dropped from 26% to 14% in the last three months.

“If you speak to people on the ground the banks are lending but only in restrictive areas and the costs are exorbitant.”