E&Y predicts return to growth in 2013

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Ernst & Young is forecasting the UK economy will rebound in the second half of this year and grow by 1.2 per cent next year, boosted by a housing market revival next spring.

In its Item Club autumn forecast, published today, Ernst & Young predicts GDP will be down by 0.2 per cent at the end of the year following a return to growth in the second half of the year but “deeply disappointing” trade performance in the first half of the year.

It forecasts GDP growth of 1.2 per cent next year and 2.4 per cent in 2014 and 2015.

The report also believes an improving outlook for consumers and easing credit conditions are paving the way for a housing market recovery. Ernst & Young expects housing transactions to bottom out this autumn before recovering in spring, with house prices set to follow.

Ernst & Young Item Club chief economic adviser Peter Spencer says: “The latest credit conditions survey shows one of the biggest headwinds facing the UK has now begun to ease – lending has started to loosen up and we are hopeful the housing market is primed for a recovery early next year.

“There are though plenty of ‘ifs’ and ‘buts’. The big question is the extent to which consumers will choose to grasp the opportunity or continue to deleverage and to pay down their debts.”

But the report says the move back to balanced growth in the medium-term will depend on a recovery in world markets. Ernst & Young says even if the US “negotiates the fiscal cliff” and the single currency is saved by European policymakers, there will still be a period of fiscal retrenchment.

Ernst & Young also believes the boost to economic growth in the second half of the year is unlikely to be enough for the Government to meet the Office for Budget Responsibility’s deficit forecast of £95bn for 2012/13.