BusinessCompany NewsUK economy predicted to ‘hit a wall’ in 2006

UK economy predicted to 'hit a wall' in 2006

The UK economy is expected to 'hit a wall' in 2006, according to the Ernst & Young Independent Treasury Economic Model (ITEM) Club - a forecasting group using the same economic model as the Treasury.

Link: PM confirms Budget will be before Easter break

The ITEM Club forecast shows the UK economy improving modestly throughout 2005, with an expected GDP growth of 2.6%, driven principally by the public sector. However, it saw the ecomomy ‘hitting a wall in 2006 as the government’s funding problems cultimate in tax rises in next year’s Budget.’ It also showed that while households have mainly kept their spending in growth in line with their incomes since 2000, government spending has rapidly outpaced the increase in tax receipts.

Professor Peter Spencer, chief economic advisor to the ITEM Club, said ‘consumers are balancing their household books rather better than the chancellor is balancing his Budget Red Book.’

Although the UK economy is forecast to improve modestly throughout 2005, Spencer says that longer-term, the fiscal position will be unsustainable, and that tax and social security contribution rates have to be increased in the 2006 Budget.

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