Investments  

GDP will accelerate to 2.2% in 2014: Ernst & Young

UK GDP is set to grow by 1.1 per cent this year, following a 0.2 per cent drive in 2012, as consumers switch their attention back from saving to spending, Ernst & Young has said.

In its summer forecast, the Ernst & Young Item Club reports a modest pick-up in the economy, driven by the consumer in general and the housing market in particular.

Although the 1.1 per cent growth is the same rate as in 2011, the Item Club highlighted that back then the recovery was cut short by the eurozone crisis, which hit exports and business investment hard.

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This year’s renewed growth is being driven mainly by consumer spending and the reviving housing market.

The Item Club has predicted that from 2014, the consumer-led recovery will morph into much more balanced growth and UK GDP growth will accelerate to 2.2 per cent in 2014 and 2.6 per cent in 2015 and stay around that level through to 2017.

The economists also predict the government’s “well-timed” initiatives to revive the mortgage market will trigger a steady acceleration in activity that will translate into national house price growth of 2.25 per cent in 2013 and 5.5 per cent in 2014.

Beyond that the recovery should gain further momentum, as credit availability, incomes and employment all continue to improve.

The Item Club said, in its view, it would take a “major crisis” to halt this recovery, highlighting the euro risks now look less threatening, and companies and consumers are both better placed to withstand external shocks.

Its forecast said: “The new Bank of England governor has further reduced the risks by providing forward guidance that the UK will keep interest rates low for a prolonged period to support the recovery. All these factors mean this is a recovery with legs.”