Sharp Drop Expected For UK Economy Next Year

Increased risk levels will weigh on U.K. economic growth in 2015, a panel of economists warned Monday.



Gross Domestic Product growth will decline to 2.4 percent in 2015, from 3.1 percent this year, the London-based non-government think-tank EY Item Club said.



The level of risk and uncertainty will rise, the group said, as upcoming elections will create political uncertainty, and growing worries about slow growth in the Eurozone economy will create concerns for business.   



Further, the conflict in Ukraine adds to the fears about global political stability.



All of this is likely to suppress the appetite of business for new investment, the EY Item Club said.



 Despite these concerns, the chief economic adviser to the EY ITEM Club, Peter Spencer, said that growth prospects of U.K. economy still look "reasonably healthy."



Spencer warned that consumer spending remains subdued, as the amount of wages paid to workers is dropping. This will help to slow growth, but it will also reduce inflation. 



"We expect Consumer Price Inflation to slow to an average of just 1.3% in 2015, and to stay below 2% until 2017." 



U.K. Consumer Price Inflation, a key indicator of living cost levels, was 1.5 percent in August. according to the U.K. Office of National Statistics.



Subdued consumer spending has also seen business investment take over as the engine of recovery, Spencer continued. Business investment accounted for almost half the rise in GDP in the past year. 



"However, as political and economic risks and uncertainties multiply -- ranging from the U.K. general election to the Eurozone's slowdown to the situation in the Ukraine -- this engine is now under threat."



"However, recently, the U.K. economy has surprised on the upside. It might again. But currently, the balance of risks is downwards," Spencer noted.



The Bank of England forecasts that the U.K. economy will grow by 3.5 percent this year and 3 percent next year. The International Monetary fund (IMF) predicted 3.2 percent growth for U.K. economy for 2014 and 2.7 percent for next year.



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