A keenly-awaited economic forecast is predicting an end to the recession as the UK economy is boosted by an 'Indian summer'.
The Ernst & Young Item Club, which uses the same economic model as the Treasury, believes the contraction in growth will be halted in the third quarter as the Olympics aids spending in the services sector.
It said falling inflation would also help people realise they could afford to spend more after a four-year squeeze in which retail prices had risen by 16.5% as average earnings grew by 8.9%.
The report painted a gloomy picture of the first six months of 2012, highlighting a drag for the economy in the second quarter caused by the extra bank holiday for the Queen's Diamond Jubilee and low confidence as a result of the eurozone debt crisis.
Item said that although the economy was expected to return to growth in the third quarter, the gains it would see in the second half of the year would not be enough to offset the weakness of the first half.
It predicted zero growth for 2012 as a whole, down from its last estimate of 0.4% three months ago.
It calculated that inflation, which was at 2.8% in May, is set to continue to drop to 1.7% at the end of 2012, helped by the Chancellor's recent decision to postpone the increase in fuel duty and falling energy prices.
Chief economic adviser Peter Spencer said: "Spiralling inflation has cut real wages by 7.5% over the last four years, but the squeeze is almost over.
"The boost to household finances and the subsequent pick-up in spending should be enough to push the UK back into positive territory this year - but don't expect a consumer-led recovery further out.
"Longer term, consumers are going to be more focused on reducing their debt burden rather than splashing the cash."
The report said the outlook for employment remained grim - despite recent falls in the jobless total - as the private sector would continue to struggle to make up for the cutbacks in the public sector.
Unemployment would peak at 8.7% next year, Item said, up from 8.2% currently.
Mr Spencer added: "This will also have a knock-on effect on pay settlements, weakening employees negotiating power and keeping earnings growth subdued for some time yet."
