UK growth to surge in spite of global turmoil
Consumer spending will help country remain insulated from global trade headwinds, says forecaster
Doom and gloom surrounding the UK economy in the face of global upheaval is misplaced as expansion is set to surge in the coming 12 months, according to one respected forecaster.
Accountancy firm Ernst and Young's Item Club said growth would come in ahead of expectations as a result of increased exports and higher consumer spending, which will be boosted further by rising wages and low inflation. It is predicting growth of 2.6 per cent this year, above a recently-downgraded official forecast of 2.4 per cent.
Consumer spending was up last year and accelerated through the final three months as low oil price-led weak inflation and improved wage rises boosted real disposable incomes. E&Y said this trend would gather pace this year due to the introduction of the first phase of the national living wage, which is no longer being offset by the removal of working tax credits.
The analyst added that a weak pound, which last week fell to a five-year low against the dollar and could go lower if the Federal Reserve pushes ahead with rates rises, will boost overseas trade. It reckons exports will surge four per cent in 2016, after disappointing growth in the past couple of years.
"While growth in world trade remains disappointing, as a result of the slowdown in emerging markets, the UK is relatively well protected," Peter Spencer, Item's chief economic advisor, told the Daily Mail. "Our traditional trading markets such as the EU and US have performed better lately and should continue to do so."
The more positive outlook coincides with an upbeat survey in the UK's important financial services sector, the Daily Telegraph adds. Almost half of 100 financial services firms polled by the Confederation of British Industry and accountancy firm PwC said business volumes had increased in the three months to December, while a third expected growth to continue in 2016.
It does, though, follow a spate of warnings from, among others, the Chancellor George Osborne on a "cocktail" of risks, which is prompting turmoil on global stock markets. E&Y says these factors and the impact of austerity will take a toll by the end of the year, with growth slowing to 2.3 per cent in 2017 and 2.2 per cent in 2018.