Forecast predicts slower growth

A forecasting group said yesterday there was enough slack in the British economy to allow the Bank of England to keep interest rates at 4.5%.

The Ernst & Young Item Club’s summer forecast contained lower estimates for growth in the next two years, as rising oil and commodity prices and overseas interest rates acted as a brake.

It also pointed out that heavy spending in recent years by the consumer sector and the government meant these sectors were no longer able to drive the economy forward.

The Item Club, which uses the Treasury’s model of the economy for its forecasts, stuck by hopes for growth of 2.5% this year, but cut the figure for next year by 0.1% to 2.5%.