Bloomberg News

U.K. to Grow Less Than Previously Forecast, Item Club to Say

July 17, 2011

July 17 (Bloomberg) -- Ernst & Young LLP’s Item Club will cut its U.K. economic growth forecasts for the second time this year as weak consumer spending and Europe’s sovereign-debt crisis cloud the outlook for the recovery.

Gross domestic product will increase 1.4 percent in 2011, compared with an April projection of 1.8 percent, the London- based Item Club, which uses the same forecasting model as the U.K. Treasury, will say in a report to be published in London tomorrow. It will rise 2.2 percent in 2012, instead of 2.3 percent. The Item Club also reduced its forecasts in April.

The U.K. recovery is failing to gain momentum as inflation at more than double the Bank of England’s target squeezes consumers’ incomes and the government cuts spending to reduce the budget deficit. While there are imbalances in the pace of the global recovery, prospects for exports remain “encouraging,” the Item Club will say.

Pressure from inflation “is now so intense that spending and saving are both falling,” the report will say. “With the government cuts now being implemented, this leaves the economic recovery totally dependent upon exports and business spending.”

The Item Club will also say that Greece “still poses a major threat to the world financial system.” The International Monetary Fund called last week for officials to adopt a “greater sense of urgency” in resolving the country’s debt turmoil.

--With assistance from Fergal O’Brien in London. Editors: Fergal O’Brien, Andrew Atkinson

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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