British companies 'must do more to back recovery'
Growth could be sluggish but there is good reason for optimism, says forecaster
Monday 19 April 2010
Corporations must "step up to the plate" and play a central role in getting Britain's economy back in shape, a leading economic forecasting group will say this morning.
With wary, debt-ridden consumers unlikely to provide the necessary boost, cash-rich businesses could provide the fillip the economy needs, according to the quarterly prediction by the Ernst & Young ITEM Club. But economic growth will remain "dismal" for the rest of the year, with neither corporate investment nor export-led growth expected to have a significant impact until 2011, it added.
"There are good reasons to be optimistic about exports and overseas demand," said Peter Spencer, the chief economic adviser to the ITEM Club. "But the immediate prospects for the economy remain dismal and we still think the UK will struggle to achieve 1 per cent growth this year."
The ITEM Club's economists take a different view from their counterparts at the Treasury, stressing Britain's reliance on rising exports rather than spending in high streets.
Average household debt shot up from 100 to 160 per cent of disposable income between 2000 and 2007, and the boost provided from the Bank of England cutting interest rates to an unprecedentedly low level last year cannot last forever. With wages also expected to remain flat, the ITEM Club predicts only a 0.5 per cent rise in spending this year. Shoppers are "cashed out and cautious, drowning in debt and concerned about the continued risk of unemployment", it says.
Corporations, however, are in the reverse position. Their surplus of 6 per cent of gross domestic product (GDP) rose to 8 per cent despite the recession, putting them in a strong position, even though they still have extra capacity and an underemployed workforce.
"It is now time for those companies who have been able to save cash and pay down debt to step up to the plate," Mr Spencer said. "The weakness of sterling provides a plethora of profitable investment opportunities. UK Plc needs to take bold steps to finance overseas expansion as well as new export capacity in order to grow the business and provide the economy with a strong export-led revival."
Given the spare capacity in the economy, investments are unlikely in the immediate future and the ITEM Club is predicting a 6.5 per cent fall this year, on top of the shattering 19 per cent drop in 2009.
However, investment is expected to rise sharply in the medium term, growing by 10 per cent next year and 14 per cent in 2012. In the meantime, Britain will be relying on export-led growth from improving world trade.
The ITEM club findings come at the start of a busy week for economic data. Friday's quarterly growth figures from the Office for National Statistics will be most keenly awaited, with Gordon Brown and Alistair Darling eager to claim that any upward movement bears out the effectiveness of Labour's economic policies. The last set of ONS figures, in January, confirmed that the economy had emerged from recession and grown by 0.4 per cent in the fourth quarter of 2009, after GDP was twice revised upwards.
"The anticipation over the release is heightened by the fact there is massive uncertainty surrounding the outcome [because of] the serious hit to economic activity in January from the Arctic weather conditions," said Howard Archer, the chief European and UK economist at IHS Global Insight.
"Hard data and surveys indicate overall that economic activity bounced back pretty well in February and March after a serious hit in January. The problem is, though, that the preliminary GDP estimate is based on only the output side of the economy and on about just 40 per cent of the final data. Consequently, there is a risk this first estimate of GDP in the first quarter of 2010 may be skewed downwards by January's very poor data."
The ONS data on GDP will follow tomorrow's inflation figures for March and last month's unemployment total, which will be revealed on Wednesday.
- 1 Malaysian cyclist could face disciplinary action after 'Save Gaza' gloves protest
- 2 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 3 Fifty Shades of Grey trailer provokes moral outrage from US parenting groups
- 4 McDonald’s removes chicken nuggets from the menu in Hong Kong amid major food scare
- 5 Students offered grants if they tweet pro-Israeli propaganda
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
Malaysia Airlines MH17 crash: victims’ bodies bundled in black bags and loaded onto trains
John Barrowman praised for Commonwealth Games opening ceremony gay kiss
iJobs Money & Business
£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...
£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...
£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...