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An Indian summer for the UK economy

An Indian summer for the UK’s economy has been predicted by one of the world’s leading economic forecasters.

Despite the appalling weather and the constant stream of doom and gloom being released daily over the ongoing Euro crisis and global slowdown the Ernst & Young Item club says that the UK economy will grow 1.6% in 2013 and 2.6% in 2014. They predict that later this year we will see inflation fall to 1.7% but growth will remain relatively flat.

Peter Spencer, chief economic adviser to the Item Club, said: “Spiraling inflation has cut real wages by 7.5% over the last four years, but the squeeze is almost over.”Inflation is now coming back to heel, helped by the chancellor’s decision to postpone the increase in fuel duty, falling energy and commodity prices, plus tax changes dropping out of the calculation.”

As a result of these changes the group predicts that disposable incomes are set to rise by 0.4% by the end of 2012 and 1.5% in 2013. The unemployment rate is predicted to hit a peak of 8.7% in 2013 as the government’s austerity plans start to bite and sees thousands of public sector workers made redundant in a bid to save cash.

“The prospect of a durable UK recovery remains heavily dependent upon confidence in financial and business communities,” says Mr Spencer, “and it is going to take time to re-build.”However, a resolution of uncertainty about the euro could transform the outlook, pushing company spending up much faster than forecast.”

The prediction of course all depends on the Euro-zone. Ernst & Young appear to have a lot of faith in the believe that the European leaders will sort themselves out and finally get the crisis under control, a belief that appears to be very far away from coming to fruition. The Item Club is forecasting business spending to grow by 3.4% in 2012, but says it is unlikely to return to pre-recession levels until 2015.

The Pound to Euro exchange rate is currently trading at 1.264

The Pound to US Dollar exchange rate is currently trading at 1.553

The Euro to Australian Dollar exchange rate is currently trading at 1.200

The Euro to US Dollar exchange rate is currently trading at 1.228

The Euro to Pound exchange rate is currently trading at 0.790

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