‘Dangerous junction’ warning as growth forecast cut

A key forecaster slashed its growth estimates for the UK and warned the economy has stalled at a “dangerous junction”.

The Ernst & Young Item Club cut its gross domestic product (GDP) forecast to just 0.9 per cent this year, down from the 1.4 per cent it predicted three months ago, and 1.5 per cent in 2012, down from 2.2 per cent.

Uncertainty across the Eurozone, which is predicted to grow by 1.6 per cent this year, and a slowing world economy, is undermining business confidence and investment decisions, the ITEM Club added.

Hide Ad
Hide Ad

Furthermore, the Item Club warned that the Bank of England’s injection of an additional £75bn of quantitative easing (QE) is unlikely to put the recovery back on track.

The report comes amid a raft of surveys, such as soft manufacturing and services data, which all point toward the UK heading towards a double-dip recession.

Peter Spencer, chief economic advisor to the Ernst & Young Item Club, said: “It’s worse than we thought. The bright spots in our forecast three months ago – business investment and exports – have dimmed to a flicker as uncertainty around Greece and the stability of the Eurozone increases.

“With the UK recovery grinding to a halt, new measures are now needed to help stimulate growth. We think there is scope for targeted tax relief and spending measures to help put us back on track.”

Hide Ad
Hide Ad

The report predicts that business investment will be flat this year and exports will increase by just 6 per cent, much less than looked likely three months ago.

The Item Club warned that increased QE would not be the silver bullet to the country’s economic woes.

Mr Spencer said the Bank should instead consider cutting already record low interest rates from 0.5 per cent to 0.25 per cent.