UK economy set to buck up

Leading economic observer predicts modest growth for the UK economy next year

The outlook for the UK economy is looking up, according to a leading economic guru.

Speaking at the recent CRN Channel Conference, Dr Andrew Sentance, a former Monetary Policy Committee member at the Bank of England, said the Western economy is starting to recover and is beginning to "bounce back" from recession.

“The world as a business has changed quite dramatically in late 2008/9 since 2008/9. Before that, the last 15 years to the late 2000s, businesses have not had to worry too much about the volatility of the macro-economic climate. There were some downturns such as the dotcom bubble and 9/11.

"But it was mainly characterised as a period of great stability by many economists. The problem is that it doesn’t go on forever. But since 2008/9 people have had to worry more about macro-economic activity."

However, looking forward, Sentance said the forecasts on the world economy "look pretty good".

"2010 has been a strong year of growth and is bouncing back from recession," he said. "UK growth is expected to have picked up to between 1.5 and two per cent next year, and is consistent with some degree of recovery."

But despite a slight uptick, the markets will remain difficult, he warned.

"High inflation is also taking its toll on the world economy and is putting a lot of pressure on commodity prices, which is squeezing income and consumer spend," he said. "The UK is currently 4.5 per cent inflation and that is set to go up to five per cent in the next couple of months. In an environment where the economy is coming out of recession and wage growth is not that strong it is putting a squeeze on consumers."

But on a more positive note the inflation surge will be temporary and there will be a "modest rebound" in consumer spending, he said. However consumers will be more cautious about spending their money and will need a "compelling reason" for doing so, he predicted.

But in the UK people need to "recalibrate their expectations" on the economy.

"Many have said that this has been the worst recession since the 1930s, but you have to be careful when saying that. Yes the downturn has been very sharp, but it is a different type of recession driven by the financial sector," he said. "Also unemployent hasn't gone above 10 per cent. In fact the economy has been more resilient than we have seen in previous recessions."