UK economy desperately requiring new growth measures

News Article - 21 October 2011
Category: Business

The nation's economy has stalled at a dangerous junction and requires new growth measures to get back on track, according to independent forecaster Ernst and Young.

The body believes the uncertainty over the Eurozone and the declining growth of the world economy is damaging business confidence.

Meanwhile the Bank of England's latest quantitative easing steps are unlikely to prompt an instant recovery.

Ernst and Young's Item Club, who use the same forecasting methods as the Government, believes growth should pick up to 1.5 per cent in 2012, but this is significantly downgraded from its previous prediction of 2.2 per cent.

Government figures revealed the UK economy grew by 0.1 per cent in Q2 2011, less than the previously-estimated 0.2 per cent.

However, a Treasury spokesman insists the slight growth means the Government's strategy is proving successful: "The Government has taken decisive action to reduce the deficit and this fiscal strategy is helping keeping interest rates low for taxpayers, businesses and homeowners and is essential for strong and sustainable growth.

"The latest data confirms the British economy is growing."

However, with unemployment set to rise from 2.57 million to 2.7 million in the next 18 months, Ernst and Young warn support is needed to get the labour market back on its feet.

Peter Spencer, chief economic adviser to the Ernst and Young Item Club, said: "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 Eurozone increases.

"We think there is scope for targeted tax relief and spending measures to help put us back on track. In the meantime, businesses need to be much more aware of the economic risks and have contingency plans in place given the current volatility."

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