U.K. Item Club Raises 2011 Growth Forecast to 2.7%

Ernst & Young LLP’s Item Club raised its forecast for U.K. economic growth next year, predicting that the weakness of the pound will fuel exports.

Gross domestic product will rise 2.7 percent next year, up from an estimate in January for 2.5 percent, the researchers, who use the same model as the U.K. Treasury, said in an e-mailed statement. The economy “will struggle” to expand 1 percent this year, the same amount predicted earlier, the group said.

The pound has dropped about 25 percent on a trade-weighted basis since the start of 2007, and U.K. businesses should take advantage of that, the group said. Prime Minister Gordon Brown is trying to narrow the opposition Conservatives’ lead in voter opinion polls ahead of the May 6 election by claiming his decisions will prevent a return to recession.

“Export deliveries, and export orders, they are all picking up, it’s looking very good for next year,” Peter Spencer, chief economic adviser to the ITEM Club and a former U.K. Treasury official, said in an interview on Bloomberg Television. “The underpinnings for the economy are getting a lot stronger, so we’re less worried” about a return to recession.

The economy probably extended its recovery from the recession in the first quarter. Gross domestic product rose 0.4 percent, the same pace as in the final three months of 2009, according to the median forecast of 31 economists in a Bloomberg News survey. The Office for National Statistics will release those data on April 23 at 9:30 a.m. in London.

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