(RTTNews) - Political uncertainty in the Eurozone has paralyzed the U.K. recovery and the economy has entered a technical recession, the Ernst & Young ITEM Club said in its quarterly forecast on Monday.
According to the winter forecast, the economy is probably in a technical recession and will struggle to reach positive growth until 2013. However, Peter Spencer, chief economic adviser said the U.K. is not going to see a serious double dip.
The 2012 growth is seen at 0.2 percent, before increasing to 1.8 percent in 2013 and 2.8 percent in 2014. The think tank downgraded the 2012 estimate from 1.5 percent.
As inflation remains subdued, the Bank of England can hold interest rates until growth prospects pick up towards the end of 2012. The forecast sees gross domestic product falling by 0.2 percent in the final quarter of 2011 and a further 0.15 percent in the first quarter of this year.
Over this year, business investment is forecast to grow 3.9 percent, faster than the 1.4 percent growth logged last year. With investment in dwellings flat or falling and government investment being cut back by 12 percent a year or more, total investment expenditure falls by 2.6 percent in 2011 and is broadly flat in 2012, the report showed.
Moreover, the labor market outlook remains bleak. The sluggish private sector recruitment will be unable to offset job losses in the public sector.
The think tank said unemployment will be just shy of the 3 million mark in the first half of 2013, representing 9.3 percent of the UK's labor force.
ITEM Club sees another 300,000 unemployed this year, which is relatively modest when compared to the increase in 2009.
TEM says that disposable incomes will decline by 0.8 percent this year, whilst consumer spending will remain flat before picking up by 1.4 percent in 2013 as employment prospects brighten and inflation remains low.
The U.K. recovery is still heavily dependent on exports. The outlook for 2012 exports looks much less promising given the weak demand from the Eurozone and concerns over China's ability to soft land their economy.
Exports are forecast to expand 3 percent this year, which will add 0.4 percentage points to U.K. GDP. But this will be dependent on the UK's ability to continue to re-orient exports away from the Eurozone to the rapid growth markets, such as India and Indonesia.
rttnews.com
According to the winter forecast, the economy is probably in a technical recession and will struggle to reach positive growth until 2013. However, Peter Spencer, chief economic adviser said the U.K. is not going to see a serious double dip.
The 2012 growth is seen at 0.2 percent, before increasing to 1.8 percent in 2013 and 2.8 percent in 2014. The think tank downgraded the 2012 estimate from 1.5 percent.
As inflation remains subdued, the Bank of England can hold interest rates until growth prospects pick up towards the end of 2012. The forecast sees gross domestic product falling by 0.2 percent in the final quarter of 2011 and a further 0.15 percent in the first quarter of this year.
Over this year, business investment is forecast to grow 3.9 percent, faster than the 1.4 percent growth logged last year. With investment in dwellings flat or falling and government investment being cut back by 12 percent a year or more, total investment expenditure falls by 2.6 percent in 2011 and is broadly flat in 2012, the report showed.
Moreover, the labor market outlook remains bleak. The sluggish private sector recruitment will be unable to offset job losses in the public sector.
The think tank said unemployment will be just shy of the 3 million mark in the first half of 2013, representing 9.3 percent of the UK's labor force.
ITEM Club sees another 300,000 unemployed this year, which is relatively modest when compared to the increase in 2009.
TEM says that disposable incomes will decline by 0.8 percent this year, whilst consumer spending will remain flat before picking up by 1.4 percent in 2013 as employment prospects brighten and inflation remains low.
The U.K. recovery is still heavily dependent on exports. The outlook for 2012 exports looks much less promising given the weak demand from the Eurozone and concerns over China's ability to soft land their economy.
Exports are forecast to expand 3 percent this year, which will add 0.4 percentage points to U.K. GDP. But this will be dependent on the UK's ability to continue to re-orient exports away from the Eurozone to the rapid growth markets, such as India and Indonesia.
rttnews.com
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