LONDON (SHARECAST) - A leading economic forecaster has predicted the UK economy will return to growth in the second half of this year, but GDP would be down across the whole year.
Ernst & Young's ITEM Club, the only non-governmental economic forecasting group to use the HM Treasury model of the UK economy, pencilled in a 0.2% drop in GDP in 2012.
The group expects the economy to grow 1.2% next year and by 2.4% in 2014 and 2015.
It said trade performance in the first half of 2012 had been deeply disappointing, offsetting the positive effect of falling inflation and rising employment on consumption.
Peter Spencer, the Club's Chief Economic Advisor, said that with exports being battered by the Eurozone crisis and a weakening economic outlook in markets such as the US, India and China, the UK was relying heavily on the high street to come to the rescue this year.
However, the fundamentals were in place to enable this to happen, he said.
"Inflation is coming back to heel, private sector employment is holding up, and the housing market also looks poised for a revival," Spencer said.
"But it’s not the balanced, long term sustainable growth we were hoping for.”
As mortgages become more readily available, the housing market will start to pick up, generating activity in associated businesses, the ITEM Club said.
The export growth that the UK badly needs would "be harder to find", it noted.
The group expects a recovery next year, with good opportunities in emerging markets still available for those who can identify them, despite slowing rates of growth.
But any late growth spurt in the second half of the year is unlikely to be enough to enable to the Government to meet the Office for Budget Responsibility’s (OBR) deficit forecast of £95bn for 2012/13, according to the Club.
It expects both the Public Sector Current Budget and Public Sector Net Borrowing to overshoot by around £8bn.
This report came as official figures showed that average UK household income rose by £69 from April to June to the highest level for 18 months.
Average real income (which takes account of the impact of inflation) in the second quarter of the year was £4,510 per household after tax, the Office for National Statistics said.
This was up 1.6% from the previous quarter, and 2.8% higher including inflation.