Outlook improves for UK economy
The UK economy could recover more quickly than expected according to economic forecasting group the Ernst & Young Item Club.
The Item Club expects the UK to return to growth in the second half of this year, marking an end to the double-dip recession.
However this depends on a solution being found to the debt crisis in the eurozone.
The UK economy contracted by 0.3 per cent in the first quarter of 2012, and a further contraction is expected in the second quarter to the end of June.
However, inflation has fallen more sharply than expected to reach 2.4 per cent in June, its lowest level since November 2009.
Lower inflation and an increase in consumer spending should help the economy return to growth in the second half, the Item Club said.
It expects overall growth for 2012 to be flat, followed by 1.6 per cent growth in 2013 and 2.6 per cent growth in 2014.
The Item Club expects the consumer prices index (CPI) measure of inflation to fall to 1.7 per by the end of the year.
Peter Spencer, chief economic adviser to the Item Club, said: “Spiralling inflation has cut real wages by 7.5 per cent over the last four years, but the squeeze is almost over.
“Inflation is now coming back to heel, helped by the chancellor’s decision to postpone the increase in fuel duty, falling energy and commodity prices, plus tax changes dropping out of the calculation.”
Reporting the June fall in inflation the Office for National Statistics said: “The largest downward pressures came from clothing and footwear, transport and food, and non-alcoholic beverages.
“The largest upwards pressure came from recreation and culture.”
The price of clothing fell by 4.2 per cent between May and June as stores brought their summer sales forward.
Rating agency Standard & Poor’s research fails to support the ITEM Club’s optimism over the UK’s economic recovery.
It expects consumer confidence to remain poor in the second half of the year, due to the ongoing eurozone crisis and concerns over job security.