UK economy ‘stalling’ in 2012

THE UK economy will remain stuck in neutral this year as companies hoard cash, according to a new forecast.

GDP will grow just 0.4% in 2012, according to the Ernst & Young ITEM Club, before rising to 1.5% and 2.6% in 2013 and 2014.

The group’s forecasts are more pessimistic than the latest predictions from the Office for Budget Responsibility which expects UK growth to hit 0.8% in 2012, increasing to 2% and 2.7% in later years.

Business investment grew by just 1.2% last year despite cash balances of private non-financial companies hitting £754bn.

ITEM Club chief economic advisor professor Peter Spencer, from the University of York, said: “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 UK has so far avoided the dreaded double dip, but a lot still hangs in the balance. After three business-friendly Budgets and more tax cuts in the pipeline, it’s now up to corporates to play their part in the UK’s recovery. The business community needs to grasp this opportunity quickly or face the consequences after the next general election.”

The Club’s report warns that household incomes, and therefore consumer spending, will remain under pressure this year and that the private sector will struggle to create jobs to match those lost in the public sector.

However it also highlights the UK’s success in exports, particulart to the US and China.

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