A leading economic forecaster has slashed its predictions for UK growth over the next two years, saying the recovery has hit a “critical juncture”.
The Ernst & Young ITEM Club has cut back its estimations of UK growth to 1.4% for 2011, down from its previous forecast of 1.8%.
It now predicts a smaller growth for next year as well, growth is predicted to be 2.2% in 2012, down from 2.3%.
Officially, the economy grew by 0.5% in the first quarter of this year, after a 0.5% decline in the last quarter of 2010.
Ernst & Young says that, while world trade and UK exports have recovered to pre-recession levels, global financial uncertainty is holding back the business investment in the UK.
It is particularly worried about the Eurozone debt crisis, which is set to create further uncertainty among businesses in Britain.
The forecast means the Bank of England may leave the base rate of interest low
Item Club economist Peter Spencer said: “The risks to the world economy and the Eurozone are plain to see, starting with the Greek default, threatening a domino effect on Portugal and Ireland, followed perhaps by Spain and Italy.”
In addition to the growing Eurozone crisis, the forecaster is concerned that downward pressure on disposable income in the UK will affect growth too.
But it believes export growth and business confidence will pick up again when the uncertainties in Europe are resolved.
The lower forecast comes ahead of the Bank of England’s Monetary Policy Committee meeting on July 20, which is now likely to keep the base rate of interest low.