Consumer spending to grow 0.4% this year, says ITEM Club

UK consumer spending is likely to grow just 0.4% in 2010 and businesses should look to export opportunities instead, according to a leading economic forecasting group.

The Ernst & Young ITEM Club – which uses the Treasury’s own model to measure the economy – has said that although the consumer is “cashed out”, exports and investment now appear to be stabilising after the sharp falls of early 2009.

With world trade forecast to grow by 8% in 2010, ITEM’s winter forecast sees UK exports hitting 9% growth in 2011 and 10% in 2012.

Professor Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, said: “After a decade of relying on the domestic consumer, companies have to start chasing overseas customers. This will require a major investment in people, products and processes.

“The economy must now stand on its own two feet. Growth is almost totally dependent on a sustained upturn in the world economy and upon the energy and enterprise of UK exporters… to cash in on a rebound in world trade. But let’s not be under any illusion – this high-wire rebalancing act is going to be very challenging.”

ITEM said it also expects positive fourth quarter 2009 GDP figures later this month, which should confirm that the UK is out of recession, but added that GDP will struggle to reach 1% this year, with interest rates likely to remain flat well into 2010.

Simon Allport, senior partner for Ernst & Young in Manchester, said: “We are now operating in a very different business environment, with new rules as imbalances are corrected. Thriving in this challenging business climate requires flexibility, creativity and imagination.

“North West businesses have adjusted by re-evaluating their business model, optimising capital availability, increasing the flexibility of their operations and extending their global market reach. Companies have to chase overseas customers after a decade of relying on the domestic consumer. Economic growth in the UK is critically dependent on the recovery in world market and exports.”