'Indian Summer’ on cards for UK economy

Improving confidence in finance and business communities could help the economy see growth

A new report has suggested the UK economy will see an ‘Indian Summer’ after a disappointed first half to the year.

As inflation falls further and consumer spending consequently picks up, the UK is forecast to return to growth during the second half of 2012.

Inflation is expected to slip back to 1.7%, whilst growth will make up for economy shrinkage in the first half of the year leading to flat growth overall.

The economy will then grow 1.6% in 2013 and 2.6% in 2014, according to the report by the Ernst & Young Item Club.

Business confidence is also forecast to improve as the eurozone gets a hold on its debt crisis.

The Item Club's Chief economic adviser said of the report findings: "Inflation is now coming back to heel, helped by the chancellor's decision to postpone the increase in fuel duty, falling energy and commodity prices, plus tax changes dropping out of the calculation."

But he indicated that business confidence needed to improve for growth to come: “The prospect of a durable UK recovery remains heavily dependent upon confidence in finance and business communities”.