Economic forecasters, Ernst & Young Item Club, are predicting in their latest quarterly report that the UK economy faces ten years of "painful readjustment" as it moves away from a decade of debt-led consumer spending to increasing exports.
Predicting that economic growth will probably not exceed 1% in 2010 and consumer spending increase by a miserly 0.4%, Peter Spencer - chief economic adviser – said: "After a decade of relying on the domestic consumer, firms have to start chasing overseas customers,"
But he made it clear that this refocusing from domestic consumption to increased global exports was going to be "very challenging" and urged companies to concentrate on China were the UK's share of trade is quite low compared to other countries.
With effort on the part of UK companies, the Item Club sees exports growing by 9% next year and 10% in 2012.
The report also casts doubt on the strength of any recovery. Even though it agrees the economy will probably have exited recession in the previous quarter [official figures are released at the end of the month] this will be due to one-off factors rather than underlying strength. These factors include firms restocking after running down their inventories, the car scrappage scheme and consumer spending being brought forward to avoid the increase in VAT to 17.5% on 1 January.
The report states: "Once the effects of these temporary stimuli have worn off, it is difficult to see where the growth is going to come from in the short term"
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