The U.K.’s recovery from recession is “doomed to disappoint” as the weakness of the pound fails to spur exports, Deloitte LLP economic adviser Roger Bootle said.
The boost from the currency will be felt “only gradually” as the economy grows 1 percent this year and 1.5 percent in 2011, Bootle, a former U.K. Treasury adviser, wrote in Deloitte’s quarterly economic review today.
With one day to go before the general election, Britain’s main parties have all stressed the need to cut the biggest budget deficit in peacetime, potentially slowing the recovery. While the pound has fallen by about a quarter on a trade- weighted basis since the start of 2007, exports have struggled to grow because of weak demand from the euro area, Britain’s main overseas market.
“What the U.K. really needs is a strong pickup in exports to offset a prolonged period of sluggish domestic demand,” Bootle said. “But that looks unlikely. With the U.K. for now struggling to capitalize on one of its only advantages, the recovery still looks doomed to disappoint.”
The U.K. economy grew 0.2 percent in the first quarter, half of the pace of the final three months of 2010. At about 12 percent of gross domestic product, the nation’s budget deficit is the largest in the Group of Seven.
The European Commission today released higher forecasts for the U.K. than Deloitte’s. The European Union’s executive arm doubled its prediction from February for 2010 growth to 1.2 percent, and said the economy will expand 2.1 percent in 2011.
The pound’s weakness, combined with an increase in oil costs, has helped stoke consumer prices. A separate British Retail Consortium report released today showed annual store- price inflation accelerated to 2 percent last month from 1.2 percent in March. The rate of food inflation increased to 2 percent from 1.2 percent the previous month.
“The main effects of rising costs and the weak pound have now been felt,” Stephen Robertson, director general of the BRC, said in a statement. “With demand still weak, shop prices should be more stable in future months, as long as there are no more big shocks.”
Job creation may also be hampered by a sluggish recovery. A separate report today by KPMG and the Recruitment and Employment Federation showed that a measure of hiring for permanent jobs slowed in April to 63.2 from 65.2 in March. A reading above 50 indicates an increase in hiring.