2006-01-23

Money & Stats: UK Economy 2006 Revival?

The UK economy is showing signs of reviving in 2006, the influential 'Ernst & Young Item Club' has said. But the body, which uses 'HM Treasury' data in its research, also warned that there are concerns over long-term stability. The group's winter forecast envisages 2.3 per cent growth in GDP in 2006, after what it calls a 'dismal' growth rate of 1.7 per cent during 2005. Strength in house prices, shares and other assets, plus a good Christmas for retailers, will all aid growth. 'Not out of woods' The club also says that in a boost for The Chancellor of the Exchequer, Mr.Gordon Brown, 'The Consumer Price Index' ('The CPI') level of inflation has fallen back towards its target of 2 per cent faster than 'anyone dared hope'. That, it says, leaves 'The Bank of England's' 'Monetary Policy Committee' ('MPC'), free to cut interest rates again if needed. Yet, according to 'Ernst & Young Item Club's' chief economist Mr.Peter Spencer, there are still worries ahead.
'We are certainly not "out of the woods" yet,' he warned. 'Growth is still "well below par" -- just hitting the Eurozone average -- and with consumer spending dropping and the pressure "piling" on exports "to take up the slack", we could be in for a "bumpy" 2006.'
Mr.Spencer says a fall in the strength of Sterling would help to aid growth in exports and investment, particularly in Europe and the Middle East. Reduced borrowing The club also says data shows the recent UK consumer spree -- much of it fuelled by spending on plastic -- has come to an end. Spending rose by only 1.3 per cent in 2005, the slowest increase in 10 years. In 2005-04 the club had complained that The Chancellor of the Exchequer had created no incentives to make the public spend rather than save. Now it says that over the past 12 months households have reduced their borrowing and increased savings. Debt remained at 'historically high levels' which means there is much less scope for households to support their spending through increased borrowing. 'UK economy 'shows recovery signs'', BBC News, 2006/01/23 00:44:05 GMT

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