The Item Club, an economic think tank within the firm Ernst & Young LLP which uses the same financial modelling as the UK Treasury, says that the economy will grow twice as much as previously forecast with gross domestic product (GDP) increasing by 1%, as compared to 0.5% forecast in July, 2009.

The Item Club statement goes on to say that The Bank of England will assess the progress of its £175 billion programme Quantitative Easing scheme to buy bonds with newly created money as the interest rate-setting panel produces economic forecasts in November.

Peter Spencer, chief economist at the Item Club, said:
“The outlook for the next 12 months is certainly looking more positive than the last year but it is going to be a bumpy ride. There could still be substantial pain.”

“The revival in capital markets has been helped by the cash infusions from QE, but apart from that the results have been disappointing. The QE cash and low interest payments are being seen as an opportunity to pay down debt rather than spend, hindering economic recovery.”

“Policy will begin to tighten in early-2010. But these measures only provide a fraction of the extra income needed to close the government deficit. Whoever forms the next government faces a once in a generation challenge.”

The Office for National Statistics will release GDP performance data on Friday 23 October, 2009, and a small increase is expected by most commentators.

Guest Article by Neil Camp

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