PRESS ASSOCIATION -- A leading forecaster has warned the UK's economic recovery has hit a "critical juncture" as it slashed the country's predicted growth prospects for the next two years.
The Ernst & Young ITEM Club has downgraded its growth forecast for 2011 to 1.4 and to 2.2% in 2012, from 2.3%.
Mounting global concerns, including the European sovereign debt crisis, will increase uncertainty among businesses, the ITEM Club said, leading to "sub-par" growth in the UK.
The UK's economy grew by 0.5 decline in the final quarter of 2010, meaning the economy effectively flatlined for six months. Some economists have warned the second quarter of 2011 could see a contraction of as much as 0.2%.
Peter Spencer, chief economic adviser to the ITEM Club, said: "The UK economy has hit a critical juncture. We are still expecting business investment to grow by 8 in 2012, however this is still well below its peak. The uncertainty about Greece and the EU periphery will continue to act as a damper on business investment in the UK, long held up as one of the torches that would light the way to recovery."
However, the ITEM Club said temporary factors - such as the impact of the Japanese earthquake and tsunami and the royal wedding - raise question marks over the reliability of official economic data. The official figures underestimate the underlying strength of the UK economy, the ITEM Club added.
Mr Spencer said talk of an alternative to the Government's austerity measures - dubbed Plan B - is premature.
UK consumers have effectively been thrown back into recession as figures reveal both spending and saving are in decline, the ITEM Club said. The situation for households could get worse, ITEM Club warned, when the full effects of April's increase in employees' National Insurance contributions are felt.
The forecaster said with inflation set to remain at above 4% this year and earnings growth subdued, it sees real household disposable incomes falling by 1.4% this year.
However, ITEM Club said it is optimistic for business prospects once the gloom dispels. Mr Spencer said: "We are optimistic about the future growth outlook, but the economy remains fragile, with worries now emerging about the key drivers for UK growth - exports and investment. However, corporate balance sheets are healthy and exports should pick up again quite quickly once current uncertainties in Europe are resolved."
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