The Ernst & Young Item Club says the UK economy is “on the mend” and will see strong growth in the next three years on the back of rising consumer spending, house prices and business investment.
The EY Item Club summer forecast shows gross domestic product growth of 1.1 per cent this year, 2.2 per cent next year and 2.6 per cent in 2015 far outstripping the forecasts of the Office for Budget Responsibility. The OBR predicts growth of 0.6 per cent this year, just 1.3 per cent next year and 2.3 per cent in 2015.
It means the Government’s budget deficit could be far smaller than the £120bn predicted at the end of 2013 and could reduce more quickly.
The economy grew by 0.3 per cent in Q1 2013 after a drop of 0.1 per cent in 2012, despite a 0.7 per cent boost in Q3 2012 on the back of the London Olympics.
EY predicts consumer spending will grow by 1.6 per cent this year but the percentage of salaries put into savings will drop to 5.6 per cent compared to 6.3 per cent last year.
The report forecasts one million people moving home this year with rapid growth in house prices of 2.3 per cent, 5.5 per cent next year and a massive 6.3 per cent in 2015. It credits the funding for lending scheme and Government’s Help to Buy scheme for a growing housing recovery.
Business investment has dropped 34 per cent since 2008 but is set to bounce back with expected expected growth of 8.1 per cent next year, 9.4 per cent in 2015 and 7.5 per cent in 2016.
The report also expects UK exports to increase by 1.2 per cent this year and 4.6 per cent in 2014, signalling a rebalancing of the UK economy.
EY Item chief economic adviser Peter Spencer says: “It is looking much more positive and we are unlikely to see a repeat of 2011 when a recovery in confidence was crushed by the Euro crisis.
“Spending on the high street is holding up nicely, housing market transactions are beginning to gather pace and, perhaps most significantly, the global economy also appears to be on the mend. In fact, it is the first time in many months where we can see balanced growth in the economy.”