‘Good Recession’ to Boost UK—But Not Until Next Year
Staff Writer, CNBC.com
The U.K. economy will get a boost from those who have had a "good recession" after its economic fundamentals changed for the better, according to an influential group of economists.
"You've got a lot of families who've had a good recession , kept their jobs and taken advantage of low rates to pay their debt down, " Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, told CNBC Europe's "Squawk Box " Monday.
The group of economists predicted a surge in growth in the U.K. in the second half of 2012, after a depressed first half, which has led to renewed pressure on the government and Chancellor of the Exchequer George Osborne.
U.K. gross domestic product will shrink by 0.2 percent this year, they predicted, before increasing to 1.2 percent in 2013 and 2.4 percent in 2014.
"Ultimately the fundamentals have changed. We've stabilized and things are looking good for consumers, " Spencer said. "Inflation is falling still and the surprise is that employment is strong, too. Add those factors together and you're talking about a growth in real disposable income."
However, the outlook is far from unequivocally positive, as the euro zone crisis and its own large public sector debt continue to hamper the U.K.'s growth. (Read More: Britain Remains Committed to Europe—For Now .)
The Item Club predicted net trade will subtract 0.6 percent from GDP this year, but will make a positive contribution to growth in 2013.
"The good news very definitely ends with the consumer. We're not going to be seeing much growth in exports. This is the wrong kind of growth coming from the high street, but at least it's some kind of growth, " Spencer said.
The amount average consumers have to spend will grow by about 1 percent this year, according to Spencer. His statement chimed with data from GfK last month indicating that U.K. consumer confidence was slowly returning to health. (Read More: Does the U.K. Need Plan B? )
The U.K.'s housing market could be the next area of the economy to be boosted by improvements to the consumer outlook.
"The big question is: The money's on the table, are there going to be families which are in a position to move in the housing market?" Spencer asked. "After five years of a very severe mortgage famine, the funding markets have suddenly moved from being extremely tight to being very relaxed. Regulators are much more relaxed about lending as well. I don't think we're going back to feast, but hopefully to a more normal situation which regulators will be able to control better."
The Bank of England should increase its quantitative easing program, Spencer said, ahead of the release of its interest rate-setting committee's latest set of minutes on Wednesday.
"The trick will really be to see action on quantitative easing, to see them buying commercial paper and things like that, " he said, adding that buying gilts is "a waste of time" at the moment because of low returns.
—By CNBC's Catherine Boyle