Consumers seen as key to recovery

CONSUMERS will have to prop up the economic recovery over the next year if the UK is to weather the storms facing exporters, a leading forecaster said today.

Ernst & Young’s ITEM Club believes recent trends of falling inflation and rising employment levels should boost consumer demand and help the UK grow by 1.2% next year, compared with a GDP decline of 0.2% this year.

However, the forecast is weaker than its earlier estimate of 1.6%, with its caution reflecting the weakening outlook in markets such as the United States, India and China, as well as the ongoing eurozone crisis.

Peter Spencer, chief economic adviser to the ITEM Club, said the UK is relying heavily on the high street to come to the rescue.

He added: “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.”

He said net trade will subtract 0.6% from GDP this year, whereas disposable incomes are forecast to increase by 1.4% in 2013.

The ITEM Club predicts housing transactions will bottom out this autumn, before recovering in spring, with house prices set to follow.

Mr Spencer added: “Lending has started to loosen up and we’re hopeful that the housing market is primed for a recovery early next year.

“There are, though, plenty of ‘ifs’and ‘buts’. .

“The big question is the extent to which consumers will choose to grasp the opportunity or continue to deleverage and to pay down their debts.”

The report says the UK’s growth spurt in the second half of the year is unlikely to be sufficient to let the Government meet the Office for Budget Responsibility’s deficit forecast of £95 billion for 2012/13.