Item Club tells Treasury its revival forecasts are 'unlikely'

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The Independent Online

The Treasury's economic forecasts "lack precision" and the economy will remain in a dismal state for the remainder of 2010, according to the influential Ernst & Young Item Club.

Peter Spencer, the club's chief economic adviser, said that the Treasury had pinned its hopes of revival on an increase in domestic demand, which appear "unlikely in the current circumstances". Consumer spending is expected to rise by just 0.5 per cent this year. "The immediate prospects for the economy remain dismal. We still think that the UK will struggle to achieve 1 per cent growth this year," he said.

The Item Club's latest report said that Britain might recover next year as a result of an increase in exports. A lack of domestic demand should mean that businesses look overseas, particularly to Asia, where the weak pound should help sell their products as they will be relatively cheap. Mr Spencer said: "UK PLC needs to take bold steps to finance overseas expansion as well as new export capacity to grow the business and provide the economy with a strong export-led revival."

The club also believes that world trade is unlikely to get back to its 2008 peak until the end of next year.