UK Recovery Will be Business-Led, say Economists
Economists say businesses will strengthen the UK economy
The Ernst and Young ITEM (Independent Treasury Economic Model) Club’s summer forecast states that the chancellor’s plans to cut the public deficit would lead to more sustainable growth from 2013, because it will be led by business investment and export.
“There’s tonnes of room for manoeuvre such as transfer payments which include welfare benefits,” said Professor Peter Spencer, chief economic advisor of ITEM Club, in an interview with TheBusinessDesk.
“While we think there will be much bigger savings than the Government has included in the ┬ú11bn in benefits, interest rates are going to be a lot lower than everybody thinks and that in turn means the Government is going to save on debt interest.”
Professor Spencer also claims that there is a range of flexibility, adding: “There’s a difference between not achieving the ┬ú40bn and getting it in a different way.”
Although he believes that the UK economic recovery will not be achieved by consumers – “there won’t be enough money going into consumers’ pockets” – Professor Spencer believes that many companies are “swimming in cash” and should use some of that funding to invest and create jobs.
The rise in VAT from 17.5% to 20% is also expected to boost the UK economy, and could help the Government pull back around ┬ú8bn.
There is also speculation that the Bank of England’s record low base rate of 0.5% will have to stay for much longer than currently expected, and could remain on hold until 2014.