'firmly on track' For Britain’s Economy
Rising consumer spending and a surging housing market have put the UK's recovery firmly on track, according to an influential forecasting body.
The Ernst & Young Item Club said the UK's recovery has "finally got legs" as it almost doubled its forecast for growth this year to 1.1%, up from 0.6% just three months ago.
Government schemes will continue to spur the housing market, it said, but added that consumers will fund higher spending by dipping into their savings, rather than through a big increase in household incomes.
However, Item said a rebalancing of the UK economy remains unlikely this year, with subdued exports and growth driven by consumers.
It expects a long-awaited revival in exports and business investment next year, reflecting a recovery in the United States, pro-growth policies in Europe and a shift towards consumption in China.
Professor Peter Spencer, chief economic adviser to the Item Club, said: "It's looking much more positive and we're unlikely to see a repeat of 2011 when a recovery in confidence was crushed by the euro crisis.
"Spending on the high street is holding up nicely, housing market transactions are beginning to gather pace and, perhaps most significantly, the global economy also appears to be on the mend."
The Government's Help to Buy and Funding for Lending schemes have been credited with driving a housing market recovery in recent months. Mortgage approvals soared to a three-and-a-half year high in May and house prices rose at their fastest rate for almost three years in June.
Help to Buy allows people to buy a home with a 5% deposit, aided with a loan of up to 20% from the Government. It will be extended next year to include a state guarantee for morgages.
Funding for Lending has helped drive down morgages and increase availability of higher loan-to-value deals, by offering banks and building societies discounted funding in return for increases in lending.