By Simon Miller
The British economy will crawl away from recession according to the latest predictions from the Ernst & Young ITEM Club.
Although monetary policy may have saved the UK from a double dip, the economy will continue to stall for the rest of the year at 0.4% before a more sustainable recovery takes hold in 2013, the Club said in a report released today.
Emergency measures from the Bank of England, ECB and US Federal Reserve have boosted confidence and stabilised financial markets, pulling the UK back from the brink of recession. But ITEM Club’s spring forecast says it is now up to UK PLC to drive the recovery forwards and prevent any relapses.
ITEM Club forecasts that following a "dismal" year in 2012, UK GDP growth will rise to 1.5% in 2013 and 2.6% in 2014.
The report said that while the wider economy was bumping along, UK corporates remained in good shape and have continued to stockpile cash on their balance sheets at an accelerating pace. The cash balances of private non-financial companies are worth over £754bn, 50% of GDP, but business investment last year only increased by 1.2%.
Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, says that the UK won’t begin to prosper until these funds are put back into the economy. “Business investment has picked up nicely in the US but UK companies remain extremely risk averse, which is sapping strength from the economy.
“Until these companies stop stashing the cash and start increasing levels of investment and dividends, the economy will remain on the critical list.”
The ITEM forecast shows that even if businesses grow investment by 6% next year and 10% in 2014, that won’t go far enough - the company sector financial surplus is still expected to increase from 5.2% of GDP in 2011 to 5.6% in 2014.