The UK economy is still growing at a slower rate than the government has predicted, according to an economic think tank.
The Ernst & Young Item Club, which uses the Treasury's model of the UK economy to make its forecasts, said the economy is struggling against a weak global recovery and slower household spending.
"The outlook remains very unclear despite the ending of uncertainty about the Persian Gulf," said the club's latest half-year economic report.
The Item Club also predicted a further cooling of the consumer spending boom and falling house prices in 2004.
Rebalancing
The Item Club is an independent economic forecast group formed of different companies sharing the cost of forecasting, and sponsored by Ernst & Young,
Its latest forecast is that the UK economy will grow by 1.7% this year, rising to 2.5% next year - a gloomier projection than that of the Chancellor Gordon Brown, who earlier this year predicted 2-2.5% growth in 2003 and 3-3.5% in 2004.
One of the key reasons for what the Item Club calls "subtrend growth" is the shift away from the consumer towards business.
"Recent data suggest that the consumer sector is cooling off too quickly, before exports and investment kick in," said the report.
One of its advisers, Peter Spencer, said 2003 was a year of "rebalance" before heading back to more substantive growth in 2004.
But he said a further cut in interest rates was unlikely.
"There will be little point in reducing rates below 3.5% as the impetus would only come through next year and by that time the economy will be in upswing."
Savings gap
While manufacturing and output figures have remained weak in 2003, the Item Club said the main concern was retail sales.
"The prospects for the consumer look particularly uncertain at the moment.
"On the one hand, although there is little evidence of this happening, people with deficient pension provision should be saving more.
"On the other hand, the spate of housing equity withdrawal still has the potential to flood the High Street given the massive amount of equity left in the market."
As house prices continued their rise earlier this year, re-mortgaging became a popular way for many homeowners to cash-in and offset pressure on household incomes.
Housing weakness
The Item Club said its forecasts assumed a sharp slowdown in housing market activity going into 2004.
It said fewer people are now moving house than at any time since 1996, with rising prices forcing first-time buyers out of the market.
"Only the most affluent, with access to savings or other funds can buy into the market at present levels."
Businesses meanwhile are going from strength to strength but still holding off large investments to stimulate the economy.
"This revival is dependent upon a recovery in demand and profitability which looks more doubtful."
Cross-Atlantic pressure
The weak performance of foreign economies is also putting pressure on the UK, according to the report.
The US economy, it says, "continues to disappoint" and is taking a while to "move up into top gear".
Meanwhile the threat of deflation in Germany and Japan are dragging down the overall picture and the "Baghdad bounce" expected after the war in Iraq has failed to materialise.
The Ernst & Young Item Club, which uses the Treasury's model of the UK economy to make its forecasts, said the economy is struggling against a weak global recovery and slower household spending.
"The outlook remains very unclear despite the ending of uncertainty about the Persian Gulf," said the club's latest half-year economic report.
The Item Club also predicted a further cooling of the consumer spending boom and falling house prices in 2004.
Rebalancing
The Item Club is an independent economic forecast group formed of different companies sharing the cost of forecasting, and sponsored by Ernst & Young,
Its latest forecast is that the UK economy will grow by 1.7% this year, rising to 2.5% next year - a gloomier projection than that of the Chancellor Gordon Brown, who earlier this year predicted 2-2.5% growth in 2003 and 3-3.5% in 2004.
One of the key reasons for what the Item Club calls "subtrend growth" is the shift away from the consumer towards business.
"Recent data suggest that the consumer sector is cooling off too quickly, before exports and investment kick in," said the report.
One of its advisers, Peter Spencer, said 2003 was a year of "rebalance" before heading back to more substantive growth in 2004.
But he said a further cut in interest rates was unlikely.
"There will be little point in reducing rates below 3.5% as the impetus would only come through next year and by that time the economy will be in upswing."
Savings gap
While manufacturing and output figures have remained weak in 2003, the Item Club said the main concern was retail sales.
"The prospects for the consumer look particularly uncertain at the moment.
"On the one hand, although there is little evidence of this happening, people with deficient pension provision should be saving more.
"On the other hand, the spate of housing equity withdrawal still has the potential to flood the High Street given the massive amount of equity left in the market."
As house prices continued their rise earlier this year, re-mortgaging became a popular way for many homeowners to cash-in and offset pressure on household incomes.
Housing weakness
The Item Club said its forecasts assumed a sharp slowdown in housing market activity going into 2004.
It said fewer people are now moving house than at any time since 1996, with rising prices forcing first-time buyers out of the market.
"Only the most affluent, with access to savings or other funds can buy into the market at present levels."
Businesses meanwhile are going from strength to strength but still holding off large investments to stimulate the economy.
"This revival is dependent upon a recovery in demand and profitability which looks more doubtful."
Cross-Atlantic pressure
The weak performance of foreign economies is also putting pressure on the UK, according to the report.
The US economy, it says, "continues to disappoint" and is taking a while to "move up into top gear".
Meanwhile the threat of deflation in Germany and Japan are dragging down the overall picture and the "Baghdad bounce" expected after the war in Iraq has failed to materialise.
3287.99
1275.09