UK economic growth to slow over winter, say forecasters

Many UK workers are in for a tough time over the next few months, warns the ITEM Club think tank

The UK recovery is losing momentum and will slow over the winter but chances of a double-dip recession have been "exaggerated", say forecasters.

Gross domestic product (GDP) will grow 1.4% this year and 2.2% in 2011, the Ernst & Young ITEM club predicted.

But the economic forecasting group added the recovery would face a "soft patch" in the coming months.

The report comes ahead of the government Spending Review which many fear will stunt the economy.

"The economy is likely to slow over the winter following a surprisingly positive first half of the year, but I think this will be a soft-patch, not a double-dip," said Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club.

He said the UK would have to wait until late 2011 before it began to see any significant economic improvement.

However he warned that low wage growth and rising unemployment along with high inflation, meant that meantime the average UK household was "in for a tough time".

His comments about personal incomes appeared to be bourne out by a separate survey from the CBI, which reported that wage restraint remained the norm among firms.

Its study of 330 firms, employing almost two million workers, found two out of five firms said they were planning below-inflation pay rises for staff.

Loosen purse strings

There has been much speculation over where the chancellor will make the cuts - with one report suggesting that on top of public sector job losses, there could be almost 500,000 private sector roles lost because of the knock-on effect.

Mr Spencer said that once the uncertainty was over, businesses would be more likely to relax and increase investment.

"Wednesday's announcement should peel away another layer of uncertainty from the economic outlook and encourage businesses to loosen the purse strings, in much the same way that the formation of the coalition government and the June Budget did earlier this year," he said.

"Helping the UK out of recession has been a bit like peeling back an onion - removing one-by-one the risks to the economy in order to re-build business confidence."