UK economy to ‘return to growth’ in second half of year

However, its quarterly forecast, which is produced using the same model as the UK Treasury, still predicts that the economy will contract by 0.2 per cent over the year as a whole, reports The BBC.

The Item Club report says that the country’s trade performance has been deeply disappointing.

This has offset the positive effects of lower inflation and rising employment.

The Item Club says economic growth will be 1.2% next year and 2.4% in 2014 and 2015, fuelled by higher consumer spending as a result of falling inflation and a better jobs market.

It says these improvements will be boosted by a recovery in the mortgage and housing markets next spring.

However, it warns that a move back to balanced growth over the medium term is highly dependent on economic developments outside the UK, including in the US where taxes are set to rise and government spending cut – the so-called “fiscal cliff” – unless a political deal is struck soon.

In addition, the Item Club reports says: “Even if the US negotiates the fiscal cliff and euro policymakers do what it takes to save the single currency, these markets will be held back by fiscal retrenchment.

“Prospects for the rapid growth markets are less bright than they seemed last year.”