Britain faces the prospect of a decade of economic pain, after binging on cheap debt, and its recovery will rely on trading more with Asian tigers like China, forecasters warned today.
The economy, expected to have escaped recession in the last quarter of 2009, faces a 'challenging' 2010, according to the Independent Treasury Economic Model (ITEM) Club economic forecasting group of auditors Ernst and Young.
'The UK economy has moved out of a decade of debt and into a decade of painful readjustment,' the ITEM Club said in a report published today.
'After years of relying on domestic spending and borrowing the economy now needs to rebalance towards saving and exporting, or risk stagnating,' it added.
British gross domestic product will meanwhile 'struggle' to reach 1% this year. 'The UK is facing another challenging year,' added chief economic adviser Peter Spencer.
'We are no longer in a position to borrow - the massive debts that we racked up in the last decade now need to be repaid. The consumer is completely cashed out - with consumer spending likely to increase by just 0.4% this year,' he added.
However, Britain will fare better if the country trades more with Asian powerhouse economies like China, he said.
'It is vital the UK rejuvenates its overseas investment model and starts selling into countries such as China, where we have an exceptionally low market share compared to our leading competitors', he said.
'The UK's recovery is reliant on a roaring trade with the tiger economies,' Spencer added.
Official data due on January 26 is widely expected to reveal that Britain exited its longest recession on record during the fourth quarter of 2009, or three months to December.
But the ITEM Club said that this was due to exceptional emergency stimulus measures - like the new-for-old vehicle scrappage scheme that has boosted the troubled car sector. Another measure was British finance minister Alistair Darling's temporary cut in taxation on goods and services (VAT), but this expired at the start of the year.
