UK economy slow recovery forecast
Updated on 19 October 2009
The UK is in line for a slow and painful recovery as the economy "bumps along the bottom" for 18 months, experts have warned.
Britain may be set to see the back of recession soon, but its recovery will be hampered by ongoing lending restrictions, world economy uncertainties and the planned withdrawal of Government support, according to the influential Ernst & Young Item Club.
Its autumn report, due out in full, cautions that gross domestic product (GDP) will at best grow by 1% next year.
The sobering forecast comes despite hopes that Friday's eagerly-awaited figures on national output between July and September will reveal the UK recession finally at an end.
The economy has not grown since the first quarter of 2008, but commentators are looking for a modest expansion in the third quarter as the UK pulls out of its headlong dive.
Consensus forecasts have pencilled in a 0.2% rise for July to September in the Office for National Statistics' first estimate of output.
However, the Item Club report predicts an "anaemic" recovery next year, with a less than smooth path for a return to sustainable growth.
Peter Spencer, chief economist for the Item Club, said: "It is going to be a bumpy ride, particularly once the Government starts to cut back.
"Policy will begin to tighten in early 2010 with the restoration of VAT to 17.5%; an end to the stamp duty holiday on housing; an increase in National Insurance Contributions; the introduction of the new 50p tax and a programme of spending restraint."
He added: "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."
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