UK faces decade of painful recovery

18 January 2010 10:46 am | By Lee Jones

Ernst & Young’s Item club, an independent body that use Treasury figures to assess the state of the nation’s finances, says it expects a weak recovery for years to come and does not expect any interest rate rises over 2010.

Item economist Peter Spencer says: “Although confidence is slowly returning to the banking markets, these are unlikely to normalise until the UK banks repay their obligations to overseas banks and to the Government.”

The club also warns that the £160bn public sector deficit is unsustainable and more stringent tightening than was outlined in the pre-Budget report is vital - it says the UK needs to experience additional tightening of £5bn each year for the next three years.

The report says: “The economy must learn to stand on its own two feet. This balancing act is going to be difficult, heavily dependent upon an upturn in the world economy.”

It predicts that GDP growth will struggle to reach 1 per cent this year, and will only pick up after 2012, with a prospect of 3 per cent growth.

The report says export will be the key to any private growth over the coming decade, especially to China when Item comments that the UK has “an exceptionally low market share”. The report says: “The push towards overseas markets will come mainly from lack of demand at home.”

Spencer says: “The astronomic size of the debts means that this process will restrain borrowing and spending over much of the new decade.”

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