Ageing Britain 'faces up to five more decades of austerity’

The cost of health care and supporting Britain’s ageing population will mean the country facing more years of austerity measures, the Government’s official forecaster will warn this week.

 
The most significant boost to the UK’s growth prospects will come from a recovery in exports and business investment beginning next year, according to ITEM.

Another £50bn of efficiency measures will be needed over the next 50 years, on top of the current £153bn, to cope with the increasing costs. However, the Office of Budget Responsibility’s observations in its Fiscal Sustainability Report on Wednesday are expected to show that measures taken by the Chancellor have eased the burden since last year.

Plans for an automatic link between the state pension age and life expectancy should reduce future costs, economists said. The Chancellor’s planned welfare cap and other benefit cuts since last year are also expected to keep a lid on liabilities. Last year, the OBR estimated that the cost of ageing would add £65bn to the deficit in today’s money.

Alongside the improvement in the long-term prospects for the country, the immediate outlook for the economy is looking better.

According to the Ernst & Young ITEM Club report, the recovery is now “established” and Britain is poised for a long-awaited revival in exports and business investment. The economy will grow by 1.1pc this year, picking up to 2.2pc in 2014 and 2.6pc in 2015.

“It’s looking much more positive and we’re unlikely to see a repeat of 2011 when a recovery in confidence was crushed by the euro crisis,” said Peter Spencer, chief economic adviser to ITEM.

“Spending on the high street is holding up nicely, housing market transactions are beginning to gather pace and, perhaps most significantly, the global economy also appears to be on the mend.
“In fact, it’s the first time in many months where we can see balanced growth in the economy.”
The most significant boost to the UK’s growth prospects will come from a recovery in exports and business investment beginning next year, according to ITEM.
Net trade — the UK’s balance of imports and exports — dragged on GDP over 2012, but as demand from the economic powerhouses of the US and China improves, UK exports should increase by 1.2pc this year and 4.6pc in 2014. Meanwhile, as firms grow in confidence, they should stop hoarding their cash and start spending on investment and recruitment. In the meantime, ITEM says consumer spending and housing market activity will support growth.
More than 1 million people will move home this year, it predicts. House prices should rise as activity picks up, increasing by 2.3pc — roughly the pace of inflation — in 2013, and accelerating to 5.5pc in 2014 and 6.3pc in 2015.
Consumer spending will also increase, by an expected 1.6pc this year and 1.9pc in the next, albeit as people dip into their savings to keep spending. Saving ratios will drop to 5.6pc from 6.3pc last year, under the projections.
The generally upbeat forecast comes after data last week supported hopes that the recovery is gaining momentum and the International Monetary Fund upgraded its 2013 growth forecast for the UK from 0.7pc to 0.9pc.