‘Consumer spending buoys sluggish economy’
CONSUMER spending will return the UK economy to growth in the second half, according to the influential Ernst & Young ITEM Club.
The think tank expects a revival on the High Street to prop up the economy after a decline in exports.
Its autumn forecast says “deeply disappointing” trade figures have stifled growth over the last six months but falling inflation and rising employment levels have seen consumer demand bounce back stronger than expected.
ITEM says these trends will continue to gather pace next year, supported by a resurgence of the housing market.
According to the report GDP will stutter to -0.2% this year overall, before increasing to 1.2% in 2013 and 2.4% in 2014.
Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, said: “With exports being battered by the eurozone crisis and a weakening economic outlook in markets such as the US, India and China, the UK is relying heavily on the high street to come to the rescue this year.
“The fundamentals are in place to enable this to happen. Inflation is coming back to heel, private sector employment is holding up, and the housing market also looks poised for a revival. But it’s not the balanced, long term sustainable growth we were hoping for.”
ITEM Club says net trade is actually expected to subtract 0.6% from GDP this year, before positively contributing to growth in 2013. In contrast, disposable incomes are forecast to increase by 1% this year and 1.4% in 2013, which feeds through to consumer spending growth of 0.6% and 0.8% respectively.
