'Too soon to talk of recovery' say Item club forecasters

Talk of economic recovery has been overdone with "substantial pain" still to come, one of the City's most influential forecasting groups warned this weekend.

Britain's economy is widely expected to officially move out of recession on Friday when GDP figures are released for the third quarter of the year. Economists predict that the British economy will have grown by as much as 0.2 per cent in the third quarter.

But the Ernst & Young Item club, which uses the same economic forecasting model as the Treasury, warns in its autumn statement that it is premature to call the start of a recovery.

"With consumers repaying debt and fiscal policy inevitably tightening after the election, it is difficult to see any serious potential for a sustained recovery in demand," says Peter Spencer, Item's chief economist. "There could still be substantial pain to come for corporates and consumers.

"The outlook for the next 12 months is more positive but it is going to be a bumpy ride," he said. "Policy will tighten in early 2010 with the restoration of 17.5 per cent VAT; an end to the stamp duty holiday on housing; an increase in National Insurance contributions; 50p tax and a programme of spending restraint."