Housing driving UK economy

Harris & Co accountants Northampton report that the UK economy is starting on the recovery path, helped by government efforts to stimulate the housing market and the high street, according to research by the Ernst & Young ITEM Club.

Its latest quarterly report forecasts GDP growth of 0.6% this year, before increasing to 1.9% in 2014 and 2.5% in 2015. The research says the increase in the personal allowance and the government’s Funding for Lending will maintain the momentum of the recovery, which will be further boosted in 2014 by the introduction of the Help to Buy Scheme.

Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, said: ‘Real incomes are already starting to recover, mortgages are becoming more readily available, and homes are more affordable as the house price to earnings ratio continues to fall. Although it’s not a long term strategy, stimulating the housing market and the high street will keep GDP growth positive. Unbalanced growth is better than no growth.’

E&Y’s ITEM Club report expects consumer spending to increase by 1.2% this year and 1.9% in 2014. But the 2.2% growth predicted from 2014/16 is well down on the 3.7% a year it averaged in the decade prior to the financial crisis.

However, the report also suggests that the UK is performing poorly in the European export markets and will have to wait until 2015 before exports start contributing positively to economic growth.

Spencer stated that as a result, the outlook for the UK economy remains pretty gloomy, saying: ‘With the rebalancing of the UK economy on hold, we’re once again relying on the consumer to see us through. Unless we see a dramatic turnaround in Europe, UK growth is likely to remain sluggish at best.’