Economic growth is picking up, may reach 2.3% in 2006: study

Economic growth is picking up, may reach 2.3% in 2006: study

	Published : Mon, 23 Jan 2006 09:20 By : Richard Owen Print this Story

LONDON: Britain's economic growth in 2006 will be 2.3 per cent, almost the same as the long-run average, according to Ernst & Young Item Club. The year 2005 saw a dismal performance when the economy grew by just 1.7 per cent.

The Item Club uses the same economic forecasting model as the Treasury. It says in its winter report that the growth in 2006 will be possible because of the revival seen in the housing market, equities and other assets and the reports flowing now indicating the retail sector too is coming out of an impasse with better sales having recorded during the Christmas.

The Item Club's chief economic advisor Peter Spencer feels that the Bank of England can offer some fillip by another interest rate cut as the consumer price inflation has fallen as expected by the bank to around 2 per cent.

However, all said and done, the economy is "not out of the woods yet", says Spencer. He has a word of caution over export performance.

A fall in the pound can indeed help the exports to grow, especially to the Middle East and Europe, Spencer said. If the country has to achieve the 3 per cent growth in 2007, exports and investment must take up the slack in the economic rebalancing act as consumers continue to save rather than spend, he added. It may be difficult to achieve this with the pound at the current levels -- $1.75 against a pound.

The predictions are almost in line with that of chancellor Gordon Brown, who had recently cut down on his growth estimate for 2006 from between 2.5 per cent and 3 per cent to a range of 2 per cent to 2.5 per cent.

The report finds that spending in 2005 has increased by 1.3 per cent, the slowest in 10 years. It is of the view that in the last 12 months, households have reduced their borrowing and increased savings. As debt remained at "historically high levels", there is no scope for households to support their spending through increased borrowings, it added.