RTTNews - U.K. real gross domestic product would fall by just over 4% in 2009, but should start to pick up later this year and into next year, with modest average growth of around 0.5% in 2010, the latest economic outlook from the global professional services firm PricewaterhouseCoopers LLP showed Tuesday.
Destocking made a major contribution to the very sharp fall in GDP in Q4 2008 and Q1 2009 and the reversal of this stock adjustment could lead to quarterly GDP growth becoming positive again before the end of 2009, it said.
At the same time, the PwC warned that there is a risk of a temporary relapse into negative growth in early 2010 due to spending being brought forward to before the rise in VAT back to 17.5% from 1 January 2010.
Consumer spending is forecast to fall by around 3.5% this year in real terms. A further but much smaller real decline is expected in 2010, with only a gradual recovery thereafter.
Public spending growth will remain positive in real terms in 2009 and 2010, but need to be cut back in the medium term. Budget deficit is projected to rise to over 12% of GDP in 2009/10 and remain around that level in 2010/11, the PwC said.
The report suggests that significant tax rises are also likely to be needed from 2011 onwards, over and above what the government has already announced.
Moreover, the PwC said despite tentative signs of recovery, house prices could still fall further next year, though the pace of decline should be slower than over the past 18 months.
With mortgage lending and housing transaction levels remaining subdued and with unemployment likely to continue rising for some time, average UK house prices are likely to fall further between 2009 and 2010, it said.
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