EY ITEM Club UK Autumn Forecast 2013
The upwards adjustment of our forecasts for UK GDP means the projections in this latest EY ITEM Club quarterly report remain higher than the consensus amongst other forecasters.
Whilst this reflects our relatively positive view of the economic outlook, risks remain — a fact underlined by businesses’ continuing reluctance to invest. Given recent events, one of the most obvious risks is the potential for further shocks and volatility, as illustrated by the political stand-off in the US over the government budget.
Against this still-uncertain background, our forecast sets out the key assumptions and events that have to take place to elevate the UK to a higher growth trajectory. These are the factors that companies should track as they assess the business climate for themselves.
One factor is that a housing bubble must be avoided. Another, given that the current drivers of growth — housing and consumer spending — are not enough on their own to fuel a sustained recovery, will be a reinvigorated contribution from business investment. A third is an improved export performance, which will help to drives real growth in incomes, in turn helping to keep house prices affordable.
As the upturn — hopefully — gathers pace, businesses must track these developments closely, and time their own moves accordingly. At the same time, to ensure they can capitalise on emerging opportunities, they need to be ready for growth, with investment and expansion plans in place, M&A targets identified, skills requirements clearly mapped out, and so on.
Clearly, many businesses are currently in a cautious mood. Given the repeated knocks sustained in recent years, and external shocks such as the Eurozone and US budget crises, the confidence needed to make significant investments is in short supply. But those with the courage to invest early will have a head start as and when the recovery gains pace.
Mark Gregory, EY Chief Economist