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UK to bounce but Eurozone GDP subdued

STRONGER growth in the world economy, the assumption of a Conservative victory at the general election and a greater response to a weak pound will boost growth in the UK economy by more than previously thought, the Centre for Economics and Business Research (CEBR) will say today in its quarterly forecast.

The consultancy now predicts GDP to grow by 1.3 per cent in 2011 compared with its previous forecast of 0.8 per cent and 1.4 per cent in 2012 instead of 1.1 per cent. It keeps its 2010 prediction at 1.2 per cent.

It said the upward revision to the forecasts is based on the assumption of a more buoyant world economy – led by faster growth in the US – and by the assumption of a stronger reaction to devaluation than had appeared to be likely.

The quarterly report also looked at the growth scenarios resulting from a hung parliament and from a Tory victory. It found that growth is similar over the first five years, although slightly faster in the hung parliament case in the first three years.

But in the years 2015-2020, a low tax, low spending Conservative government would reap the benefits, with economic growth running about 0.3 per cent per annum faster. By 2020 GDP is about £20bn higher under the low tax scenario associated with a Tory victory.

Douglas Williams, CEBR chief executive, said that whatever happens at the election, “a higher tax strategy is likely to lead to significantly slower economic growth in the longer term”.

However, subdued growth in the Eurozone could pose a problem for the UK’s recovery prospects, a separate report from Ernst & Young (E&Y) shows today.

The new E&Y quarterly Eurozone Forecast (EEF) predicts that economic growth in the UK’s main trading partner will only be one per cent this year and 1.6 per cent in 2011.

“While there are some bright spots we estimate that it will not be until mid 2012, and five years after the global downturn began, that the economy has staged a full recovery,” said Marie Diron, senior economic adviser to the E&Y Eurozone Forecast.

The EEF predicts unemployment will rise further this year and in 2011 to as high as 17m across the 16-country region.