Economy stalls as investment and exports decline

THE UK economy has stalled with business investment and exports, the key drivers of the recovery now stuck in neutral, latest reports have suggested.

Ernst & Young’s influential ITEM Club said uncertainty across the Eurozone was having a destabilising effect on the area’s economy overall, which was being compounded by a global slowdown. These factors have combined to put a halt on UK growth ambitions, it added.

Even the additional £75bn in quantitative easing, announced by the Bank of England this month, is unlikely to have much impact the club report states. It said the government should now be looking to use targeted monetary and fiscal measures to support growth.

The ITEM Club has now downgraded its GDP forecast to just 0.9% this year (down from the 1.4% it predicted three months ago) and 1.5% in 2012 (down from 2.2%), before moving up to 2.5% in 2013.

Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, said: “It’s worse than we thought. The bright spots in our forecast three months ago – business investment and exports – have dimmed to a flicker as uncertainty around Greece and the stability of the Eurozone increases.

“With the UK recovery grinding to a halt, new measures are now needed to help stimulate growth. We think there is scope for targeted tax reliefs and spending measures to help put us back on track. In the meantime, businesses need to be much more aware of the economic risks and have contingency plans in place given the current volatility.”

The report predicts that business investment will be flat this year and exports will increase by just 6%, much less than looked likely three months ago.

Unemployment will also rise, it has predicted, estimating the workless figure will rise to 2.7m by the spring of 2013.