Recovery 'has legs' as growth forecast doubled

The UK's economic recovery has "finally got legs" as consumer spending rises and the housing market booms.

That's the verdict of the influential Ernst & Young Item Club forecast, which has almost doubled its forecast for growth this year to 1.1%, up from 0.6% just three months ago.

The report predicts that Government schemes such as Help to Buy will continue to spur the housing market, while consumers will dip into savings to fund higher spending for the rest of the year.

However, Item said a rebalancing of the UK economy remains unlikely this year, with subdued exports and growth driven by consumers.

It expects a long-awaited revival in exports and business investment next year, reflecting a recovery in the United States, pro-growth policies in Europe and a shift towards consumption in China.

Professor Peter Spencer, chief economic adviser to the Item Club, said: "It's looking much more positive and we're unlikely to see a repeat of 2011 when a recovery in confidence was crushed by the euro crisis.

"Spending on the high street is holding up nicely, housing market transactions are beginning to gather pace and, perhaps most significantly, the global economy also appears to be on the mend."

The Government's Help to Buy and Funding for Lending schemes have been credited with driving a housing market recovery in recent months. Mortgage approvals soared to a three-and-a-half year high in May and house prices rose at their fastest rate for almost three years in June.

Help to Buy allows people to buy a home with a 5% deposit, aided with a loan of up to 20% from the Government. It will be extended next year to include a state guarantee for mortgages.

Funding for Lending has helped drive down mortgage rates and increase availability of higher loan-to-value deals, by offering banks and building societies discounted funding in return for increases in lending.