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Housing-based recovery more difficult to maintain

A RECOVERY based on the housing market and consumer spending will be "hard to sustain" given the pressure on real incomes, according to EY ITEM Club research published today.

The economic think-tank recommends the Bank of England's Monetary Policy committee should not raise interest rates until real wages rise and the recovery broadens into exports and business investment.

However the ITEM Club says unemployment may well fall below the BoE's 7% threshold for considering an increase in the base rate.

But it warns any rate increase this year risks unbalancing the recovery and as a result expects policymakers to leave the 0.5% record low unchanged until next autumn.

By then the ITEM Club predicts there will be broader and more sustainable economic progress.

Peter Spencer, chief economic advisor to the ITEM Club, said : "The weakness of real earnings is proving to be the Government's Achilles' heel and could prove to be the weak spot in the recovery."

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