UK economic activity is expected ‘to remain subdued with growth of 0.5% this year before regaining momentum in 2013’, according to the European commission
UK economic activity is expected “to remain subdued with growth of 0.5% this year before regaining momentum in 2013”, according to the European commission.
In its health check of the economy issued alongside a series of reports from Brussels on eurozone countries, it pencilled in GDP growth next year of 1.7% — weaker than the 2% projected by the independent Office for Budget Responsibility.
The commission also raised a series of concerns about the underlying health of the UK, including a shortage of affordable childcare; the boom-bust housing market; and the risk that spending cuts will conflict with the need to rebuild Britain’s crumbling infrastructure.
“The UK has a considerable challenge ahead in reconciling a need for further deleveraging with the need for more investment across the economy to support sustainable and balanced growth,” it said.
Business investment has fallen very sharply, as anxious firms try to rebuild their shattered finances, the commission added, saying, “an unprecedented drop in business investment after 2007 saw the UK level of gross fixed capital formation as a share of GDP fall to 14.3 % in 2011, the third lowest level in the EU-27,” the commission said.
Brussels also commented on the UK’s stagnating housing market, warning that, “a sustained and significant fall in household debt is only likely if house prices fall relative to disposable income; however, rapid house price falls would risk pushing many households into negative equity. Residential construction remains at record lows and the housing market is stuck in a low transaction equilibrium.”