EY ITEM Club UK Autumn Forecast 2013
Economic forecast in summary
With UK GDP now projected to grow by 1.4% this year and 2.4% next year after a 0.1% rise in 2012, it’s increasingly evident that the reinvigorated consumer — emboldened by a reviving housing market — has pushed the UK economy into a higher orbit.
However, rising consumer spending and confidence alone will not be enough to deliver the escape velocity needed to achieve sustained growth. For this to happen, the engines of business investment and exports will also need to kick in. Fortunately, the outlook for both of these areas remains encouraging, suggesting that the pattern of growth will become more balanced.
Clearly, unforeseen events could disrupt this rosy scenario — not least new external shocks from left-field, as shown by the US budget deadlock. However, one risk that we believe has been strongly overplayed is the danger that the UK government’s initiatives to support the housing market will result in a housing bubble. The current rises in prices and transactions are from a historically very low base, and remain way below pre-crisis levels.
With the housing recovery knocking on into wider consumer spending, and virtually all surveys of business confidence trending upwards, the economic outlook for the UK is continuing to brighten — despite the inevitable risks.
Peter Spencer, Senior Economic Adviser to ITEM Club
|Year||GDP||Domestic demand||Consumer spending||Fixed investment||Exports||Imports|
|Year||Net government borrowing [*]|| Current account |
[% of GDP]
|Average earnings||CPI inflation||3-month interest rate||Effective exchange rate|
| [*] Fiscal years, as % of GDP |
Source: ITEM Club