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Last Updated: Monday, 25 April, 2005, 06:43 GMT 07:43 UK
UK economy 'needs people to save'
The report says occupational pensions have been hit since 1998
UK consumers must rediscover their habit of saving to avoid putting undue strain on the economy, the influential Ernst & Young Item Club has said.

The body, which uses Treasury data in its research, said Chancellor Gordon Brown had removed incentives to save.

But the group's spring forecast said the economy was strong in the short term, with consumer confidence high and economic growth on track.

It predicted growth of 2.7% this year, followed by 2.4% in 2006.

The Item Club said there were fewer incentives to persuade people to put cash aside and that action was required to resolve the problem "as a matter of urgency".

'Bad example'

"We have basically lost our savings culture," Peter Spencer, chief economic adviser to the Item Club, told BBC News.

"A lot of the incentives to save, for pensions for example, have been withdrawn.

"Gordon Brown is also setting a bad example by borrowing a lot of money and we are simply following."

He warned "we are saving too little as a nation ", with household savings rates "collapsing" since 1998.

Mr Spencer also predicted that the country's pensions deficit would prove a strain in the longer term, partly due to the occupational pensions system having been "seriously degraded".

The report said that as well as easing the tax burden in the medium term, an increase in savings would help rebalance the economy in the short term.

'Rates on hold'

The Item Club also repeated warnings that the Chancellor's "golden rule" on the economy was likely to be breached and that tax rises would be necessary in the next Budget as a result.

It forecast a budget deficit of 12bn for 2005-06 against the Chancellor's prediction of 6bn.

The group said any fall in house prices would be modest, with no indications of a major downturn. It also said it was very hard to see a major weakening in the housing market or the High Street.

But Mr Spencer added: "We are not now borrowing nearly as much as we were. Mortgage equity withdrawal has moved right down and that has affected spending on the High Street."

He also that interest rates looked to be on hold for the foreseeable future.

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