RISING house prices, improving retail sales and growing business confidence will keep the economy out of recession this year, and back into healthier levels of growth next year and beyond, top economists forecast today.
More than 1m predicted housing transactions this year indicate the sector at the centre of the crisis is at last getting back on its feet, Ernst & Young’s Item Club forecast.
And falling taxes mean the average earner on £23,000 will have an extra £280 to spend this year, at last overcoming inflation to boost consumer spending. The analysts predict the economy will grow 0.6 per cent this year, 1.9 per cent next year and 2.5 per cent in 2015.
However, the Item Club warned households are still struggling to control their borrowing from earlier years – personal debts stand at an average of 146 per cent of disposable income, down from a peak of 174 per cent in 2007. That is forecast to stabilise at 136 per cent in 2016.
“Don’t expect a return to pre-crisis levels of spending – consumers have been burnt by the experience of the recession and are much more cautious with their finances,” said economist Peter Young.
“Households are likely to continue paying down debt rather than racking up huge credit card bills.”
The forecast also warned sustained weak demand from European economies is likely to drag on growth in Britain.
Despite claims of rebalancing, the report fears the economy has failed to shift away from its reliance on traditional trading partners in Europe and towards growth economies like China and India.
As a result of that failure to rebalance, net trade will subtract 0.2 per cent from GDP this year and next year, the Item Club believes, before adding just 0.1 per cent in 2015.
“The Eurozone is heading for a prolonged period of weakness, so companies need to grasp the nettle and ramp up their activities in emerging markets or risk missing out to competitors,” said Item Club chief economist Mark Gregory.