Pace of recovery losing momentumbut double-dip fears 'exaggerated'

THE likelihood of a double-dip recession in the UK has been "exaggerated" but the pace of recovery is losing momentum, an economic forecaster said today.

The Ernst & Young Item Club predicts GDP growth of 1.4 per cent this year and 2.2 per cent in 2011, but said the recovery will face a “soft patch” in the months ahead.

The group, which bases its forecasts on the Treasury’s economic model, said it was “hardly surprising” that policymakers at the Bank of England were considering pumping more cash into the economy in the wake of Chancellor George Osborne’s spending review, to be revealed later this week.

Peter Spencer, chief economic adviser to the Ernst & Young Item Club, said: “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.”

Professor Spencer, of the University of York, said once the spending review is revealed, the climate for businesses should relax as the uncertainty over where the Chancellor’s axe will fall will be over.

He forecast business investment to increase by 1.8 per cent this year and accelerate to nine per cent in 2011.

Prof Spencer said: “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.