The economic forecasting group has stated that the decline in oil and other commodity prices will provide a “shot in the spending arm” for UK consumers, who will have more spending power over the next year.
The data suggests that income from wages and salaries will increase by 3.5 per cent in 2015, while real disposable incomes will go up by 3.7 per cent. The forecast sees real household consumption increasing by 2.9 per cent this year and 2.6 per cent in 2016.
In addition, the Item Club said: “Lower oil prices mean that inflation will average around zero in 2015, and turn negative in the early months of the year, helping to stay the hand of the Bank of England on interest rates.”
Meanwhile, UK companies’ trading markets in the US and Europe will benefit from lower energy prices, which should help to offset weak global demand for UK exports.
Peter Spencer, chief economic advisor to the EY Item Club, said the falling oil prices had come at the right time for the UK, “just as the recovery was losing momentum”.
He commented: “Not every economy will be a winner from oil prices collapsing, but the UK certainly is. We have described the previous weakness of commodity prices as a silver lining in the storm clouds gathering over the world economy. But with oil prices now down over 50 per cent since last June, this silver lining has turned to gold.”