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ITEM Club slashes UK GDP forecast, still sees recovery in 2013

Date: Monday 16 Jan 2012

ITEM Club slashes UK GDP forecast, still sees recovery in 2013

-Doubts are increasing about the ability of China and other emerging markets to drive the global recovery.

-Oil price has been kept up by social and political tensions in the Middle East&North Africa region, and a showdown with Iran would threaten much higher energy prices.

-Unemployment to rise to just shy of 3m early next year, to 9.3% of the workforce.

-Current resilience of the US and many other overseas markets and the strength of large company finances mean that the ITEM Club does not envisage a serious double dip.

The Ernst & Young ITEM Club, the well-respected economic forecaster, believes the United Kingdom is already in a recession and that growth will flat-line this year. Hence, the consultancy has slashed its 2012 gross domestic product growth forecast to just 0.2%, from the 1.5% previously estimated.

Economic growth however is expected to recover to 1.75% in 2013.

Professor Peter Spencer, the organisation's chief economic advisor, said: “Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement.”

He added nonetheless that, “it’s not going to be a repeat of 2009; we are not going to see a serious double dip.”

Even so, the ITEM Club’s assumptions are dependent on the Eurozone remaining intact but the latest estimate does emphasise that the uncertainty over Europe is making businesses reluctant to invest.

ITEM Club forecasts that investment fell by 2.6% in 2011 and will grow by just 0.4% in 2012.

This, says ITEM, will have a knock-on effect on jobs, with the unemployment rate reaching nearly three million in the first half of 2013, or 9.3% of the UK’s workforce.

Speaking on Bloomberg TV Andrew Goodwin, a senior economic adviser at Ernst &Young’s ITEM Club, indicated that they foresee the Bank of England increasing the size of its asset repurchase programme by a further £75bn in February.

ITEM Club anticipates that consumer price inflation in the United Kingdom will advance by 2.3% this year, after rising 4.5% in 2011, while net government borrowing will diminish to 7.6% of GDP, from 8.4% the previous year.

Lastly, the ITEM Club sees the United Kingdom’s average effective exchange rate appreciating slightly 2012, to 81.5 from 80.0 the year before.

BS

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