Pound frailty to continue, says Item report
THE UK economy is back from the brink as market confidence increases and the recession draws to an end, according to the Ernst & Young ITEM Club Autumn forecast, released today.
But the report warns that Gross Domestic Product (GDP) growth is unlikely to reach one per cent next year and the pound is likely to edge lower to boost UK competitiveness.
Professor Peter Spencer, chief economist to the Ernst & Young ITEM Club, said: “World equity markets are now at their highest for a year, facilitating new issues and sparking a revival of M&A activity, while businesses and consumers are feeling more up-beat, and even the UK housing market is apparently turning up.
“But with consumers repaying debt and fiscal policy inevitably tightening in the UK after the election, it is difficult to see any serious potential for a sustained recovery in domestic demand.”
The report says that unless further fisal measures are taken the deficit is only likely to drop from £175bn in 2009/2010 to £113bn in 2013/14.
It forecasts consumer price inflation of two per cent this year, dropping to 1.6 per cent over 2010/2011.
Consumers are expected to spend ahead of the 1 January VAT increase.