Britain's economy will struggle to grow this year as exports slow and business investment lags, according to the latest Spring forecast from the Ernst & Young ITEM Club.
Growth will likely reach 0.6 percent this year, the ITEM Club said in a report published Monday on its website, slower than the 1.4 percent the group predicted in January, before accelerating to 1.9 percent and 2.5 percent in 2014 and 2015 respectively.
"The UK Government's long-term aim is to rebalance the economy away from consumption and towards exports and investment," said the ITEM Club's senior economic adviser Peter Spencer. "With our European neighbours also pursuing higher exports, and UK businesses lacking the confidence to invest, these plans appear to be on hold."
The group said the government's £3.5bn 'Help to Buy' scheme, which offers mortgage support for certain first-time buyers of newly built homes, will boost both housing-related spending and construction in a market it says has been in a "straightjacket" for the past five years.
Mark Gregory, the ITEM Club's chief economist, said the government's influence on the housing market could spike consumer spending and engender a faster recovery than many UK businesses are currently anticipating.
"With disposable incomes, housing transactions, employment and general economic confidence all set to pick up, the initial economic upturn could accelerate quickly," he said in the report. "Businesses must develop plans to move fast and decisively once positive indicators emerge."
Business investment, however, has not shown signs of matching the potential pent-up demand in the economy.
"Despite UK plc's strong balance sheets, business spending is still being limited by spare capacity and low confidence factors that will see it grow just 2.2% this year, rising to 8.1 percent in 2014," the report said.
The report also said the Bank of England could be preparing for more policy stimulus - including an increase in the current £375bn programme of quantitative easing - following Chancellor George Osborne's Budget Statement which gave the Bank a broader inflation remit and comments from Bank officials that suggest it was prepared to tolerate faster inflation in order to ignite economic growth.
"These announcements by the MPC and the Chancellor appear to be laying the ground for further (quantitative easing) and our forecast assumes a further £25bn of asset purchases in both May and August," the report said. "However, we feel that this is unlikely to provide much support to the recovery and the continued use of the (Funding for Lending scheme), which appears to be gradually increasing credit availability to both households and firms, is far more important."
The so-called "productivity puzzle" - where output per worker and output per hour have fallen despite impressive improvements in the UK labour market - was also addressed in the ITEM Club report. It says delayed business investment has reduced the pace of innovation in some firms, thanks to strict capital allocation needs following the financial crisis, and that labour "hoarding" during the recession could mean job creation slows even as the economy begins to improve next year.