Pound frailty to continue, says Item report

THE UK economy is back from the brink as market confidence increases and the recession draws to an end, according to the Ernst &amp; Young ITEM Club Autumn forecast, released today.<br /><br />But the report warns that Gross Domestic Product (GDP)&nbsp; growth is unlikely to reach one per cent next year and the pound is likely to edge lower to boost UK competitiveness.<br /><br />Professor Peter Spencer, chief economist to the Ernst &amp; Young ITEM Club, said: &ldquo;World equity markets are now at their highest for a year, facilitating new issues and sparking a revival of M&amp;A activity, while businesses and consumers are feeling more up-beat, and even the UK housing market is apparently turning up.<br /><br />&ldquo;But with consumers repaying debt and fiscal policy inevitably tightening in the UK after the election, it is difficult to see any serious potential for a sustained recovery in domestic demand.&rdquo;<br /><br />The report says that unless further fisal measures are taken the deficit is only likely to drop from &pound;175bn in 2009/2010 to &pound;113bn in 2013/14.<br /><br />It forecasts consumer price inflation of two per cent this year, dropping to 1.6 per cent over 2010/2011.<br /><br />Consumers are expected to spend ahead of the 1 January VAT increase.