UK GDP will struggle in 2010 warns E&Y Item Club

| October 19, 2009 | 0 Comments

The Ernst & Young Item Club, a respected group of economists, believes that the UK economy will struggle to achieve 1% growth next year and it is still too early to declare a recovery.

The influential think tank is forecasting some growth in the latter half of 2009 but Gross Domestic Product (GDP) will struggle next year as a result of consumers repaying debt and tax hikes after the election.

2010 will see the end of the stamp duty holiday, an increase in national insurance contributions, the introduction of the new 50p tax rate and the end of the car scrappage scheme - all resulting in restrained Government spending.

Official GDP figures for the third quarter are due on Friday (23 October) and will reveal if the UK has emerged from recession.

If the economy does not experience growth, it will be the first time the UK has endured six consecutive quarters without growth.

Meanwhile, BT Business research provided a positive assessment after a survey of over 7,000 small businesses last month found that three quarters were expecting an upturn next year while almost two-thirds were confident about the prospects for their businesses in 2010.

However, the Ernst & Young Item Club’s chief economist, Professor Peter Spencer, told the BBC: “There could still be substantial pain to come for corporates and consumers.”

“For a sustainable recovery the UK economy needs world trade to pick up and there is still not much sign of that happening,” he added.

In other news, the Item Club recently described the latest house price rises as a “false dawn”.

Hetal Mehta, the Item Club’s senior economic adviser, said: “A small number of cash-rich buyers have supported prices, but the supply of these funds is limited, which means prices are likely to dip again in the first half of next year.”

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