With wages predicted to rise slower than inflation this year, future growth in the UK is under threat a member of the Office for Budget Responsibility (OBR) warned. Consumer confidence is important in propelling future growth, but with the bleak economic outlook at the moment, this has taken a big hit.
Growth is predicted to pick up to 2.9 per cent in 2013, but if inflation doesn't start to fall next year, this figure will not be met since consumers will remain frugal. The main concern in increasing inflation is oil price rises, which remain uncertain, due in part to prolonged conflict in the Middle East.
Another problem is whether the OBR has miscalculated the UK economy's spare capacity - potential growth produced by the re-employment of workers and increased production in factories once the economy has normalised again. The OBR estimates this figure to be around 3.9 per cent this year, falling to 1.4 per cent by 2015. However if the current estimate is incorrect, it would meant the government would not be able to meet its five year targets for public finances.