- Monday, 19 April 2010The UK treasury cannot rely on a consumer-led recovery as people are 'drowning in debt' states the Item Club's spring forecast, released on April 19th.
More people have been forced to take out an
IVA or declare
bankruptcy since the beginning of the financial crisis, which has reduced the amount of disposable income consumers have to put back in the economy.
The government hopes that UK economic recovery can be achieved through a bounce back in the housing market and consumers going back to the high street.
However, Item part of Ernst and Young, is the only economic forecasting group that uses the HM treasury model of the UK economy, predicts that economic recovery can only be attained through the export market as people are reluctant to spend money while household incomes are under pressure and they struggle with debt.
Peter Spencer, chief economic advisor to the Item Club, said: "We remain concerned that the treasury's forecast lacks precision. It is dependent upon a strong revival in domestic demand over the next two to three years, which appears unlikely in the current circumstances."
Household debt rose from 100 per cent to 160 per cent of disposable income from 2000 to 2007, according to the forecast. Incomes were boosted last year by the sharp decline in interest rates but they cannot fall any further.
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