‘Indian summer’ forecast for UK high streets

By GARETH MACKIE
Published on 16/07/2012 00:00

Falling inflation will help the UK economy enjoy an “Indian summer” as hard-pressed consumers return to the high street, economic forecasters said today.

However, the Ernst & Young Item Club said the second-half growth will merely cancel out the falls in the first half, meaning the economy will be stagnant for 2012 as a whole.

Just three months ago, the group had predicted 2012 growth of 0.4 per cent.

It said inflation, which measured 2.8 per cent in May, will continue to drop to 1.7 per cent at the end of 2012, helped by falling energy prices and Chancellor George Osborne’s recent decision to postpone the increase in fuel duty.

Chief economic adviser Peter Spencer said: “Spiralling inflation has cut real wages by 7.5 per cent over the last four years, but the squeeze is almost over.

“The boost to household finances and the subsequent pick-up in spending should be enough to push the UK back into positive territory this year – but don’t expect a consumer-led recovery further out.

“Longer term, consumers are going to be more focussed on reducing their debt burden rather than splashing the cash.”

The Item Club, which uses the same model as the Treasury, is forecasting a 1.6 per cent rise in GDP next year, followed by 2.6 per cent in 2014.

But it warned that recent falls in unemployment were unlikely to continue, and the jobless rate is forecast to peak at 8.7 per cent next year, up from 8.2 per cent currently.

GARETH MACKIE