UK economic growth has stalled and the Bank of England’s latest £75bn injection is unlikely to kick start it, another downbeat report said today.
The respected Ernst & Young ITEM Club, which bases its quarterly report on the Treasury’s models, downgraded its forecast for growth this year from the 1.4% it predicted three months ago to 0.9%
It also cut next year’s forecast from 2.2% to 1.5% and said unemployment will keep rising until it peaks at 2.7m in early 2013.
The gloomy report, the latest in a batch of similarly pessimistic economic surveys, will make uncomfortable reading for Chancellor George Osborne and Bank of England Governor Melvyn King as they grapple with the dire situation of almost zero growth and inflation of nudging 5%.
The ITEM Club’s chief economic advisor Peter Spencer told the Reuters news agency: “It's worse than we thought.
“The bright spots in our forecast three months ago – business investment and exports – have dimmed to a flicker as uncertainty around Greece and the stability of the euro zone increases.”
As a result, the Bank’s second round of asset purchases – or quantitative easing – is “unlikely to put the recovery back on track,” the ITEM said.
The Bank should consider cutting interest rates to a new record low of 0.25% from 0.5% and the chancellor could reallocate existing budgets to support business, for example by cutting the National Insurance employee tax.
Cutting property purchase taxes, particularly for first-time buyers, would support the construction industry and could help consumer spending.
