Ernst & Young says the UK economy is “on the mend” and set for strong growth in the next three years on the back of rising consumer spending, house prices and business investment.
The EY Item Club summer forecast suggests gross domestic product growth of 1.1 per cent this year, 2.2 per cent next year and 2.6 per cent in 2015, outstripping the forecasts of the Office for Budget Responsibility. The OBR predicts growth of 0.6 per cent this year, 1.3 per cent next year and 2.3 per cent in 2015.
The economy grew by 0.3 per cent in Q1 this year after a drop of 0.1 per cent in the same quarter in 2012, despite a 0.7 per cent boost in Q3 2012 on the back of the London Olympics.
EY predicts consumer spending will grow by 1.6 per cent this year but the percentage of salaries put into savings will drop to 5.6 per cent, down from 6.3 per cent last year.
The report forecasts one million people moving home this year with rapid growth in house prices of 2.3 per cent, 5.5 per cent next year and 6.3 per cent in 2015.
EY Item Club chief economic adviser Peter Spencer says the UK is on the mend and coming to a “tipping point”, when the economy could improve quickly and “without warning”.
National Institute of Economic and Social Research director Jonathan Portes says: “Since the OBR gave its forecast the data has been somewhat better so I expect it will revise its forecast up. It is still mediocre performance after such a deep recession and unemployment is too high but it is better.”