The British economy is in good shape and will grow modestly in 2003 before expanding more rapidly in the years ahead, a report released today says.
The Ernst and Young ITEM club, which uses the same model of the economy as the British treasury, said although consumer spending would slow down this year, a healthy business sector and good fundamentals would keep the economy moving ahead.
"Despite all the doom and gloom of the last few months, the UK economy is fundamentally sound, and we will see GDP growth picking up later this year to over 2 per cent and accelerating into 2004/5," the ITEM club said in a statement.
It also predicted house prices would continue rising in 2003 despite fears of a property market collapse.
Mr Peter Spencer, the ITEM club's economic adviser, said: "The modest growth we are predicting for the housing market in 2003 will balance the downturn in both consumer and government contributions that will occur over the next 12 months".
House prices, a key factor for consumer confidence, have been rising rapidly for several years and grew by more than 20 per cent in 2002.
The report said the Bank of England would probably cut interest rates towards the end of the year, which would give the housing market a boost.
The stock market slump of the past two years was a necessary correction of over-exuberance in the run-up to the millennium, Mr Spencer said. "This adjustment leaves the economy in much better shape in the long term," he added.
ITEM also said it expected a stronger euro to push down euro zone inflation rates. This would pave the way for rate cuts which were needed to revive Europe's markets, it said.