UK narrowly avoids a double-dip recession

 

The UK has narrowly avoided a double-dip recession but will struggle for the rest of the year unless businesses stop hoarding cash and start investing, a forecaster warned today.

Emergency measures from the Bank of England, European Central Bank and US Federal Reserve have boosted confidence and stabilised financial markets, pulling the UK back from the brink of recession, the Ernst & Young ITEM Club said.

The ITEM Club has forecast that UK GDP growth will be a “dismal” 0.4% this year, which is half the 0.8% estimated by the tax and spending watchdog, the Office for Budget Responsibility, before rising to 1.5% in 2013 and 2.6% in 2014.

The UK economy shrank by 0.3% in the final three months of last year and is broadly expected to have just avoided a technical recession by eking out around 0.1% to 0.2% in the first quarter of 2012.

Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club, said the UK will not prosper again until businesses invest stockpiled cash.

He said: “Business investment has picked up nicely in the US but UK companies remain extremely risk averse, which is sapping strength from the economy.”

The cash balances of private non-financial companies are worth more than £754 billion, the ITEM Club said, 50% of GDP, but business investment last year only increased by 1.2%.

In contrast to big business, households remain under intense pressure, the ITEM Club said, with private sector companies finding it increasingly difficult to create the jobs to offset losses in the public sector.

Unemployment is expected to approach 9.3% of the UK's total workforce by the middle of next year, with just short of three million people out of work, before beginning to fall back, the ITEM Club said.

Mr Spencer continued: “Households remain under the cosh and UK unemployment is set to go even higher by the end of the year.

“But there is a small glimmer of light at the end of the dole queue. For the first time in years, the gap between wage growth and inflation should start to close, before reversing in 2013.”

ITEM forecasts that disposable income will fall by 0.2% in 2012, while consumer spending will increase by 0.8% before accelerating to 1.1% in 2013 as household incomes gradually strengthen.

Elsewhere, the ITEM Club has predicted that the UK's export performance should pick up despite shipments to the eurozone being restrained.

Exports of goods increased by 5.1% in volume terms in 2011, while services were up by 3.9%. The UK is expected to put in a similar performance this year, the ITEM Club said, with exports growing by 4.5% and net exports adding 0.3% to GDP.

Mr Spencer said: “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 is 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.”

PA

VIDEO
News
news
Life & Style
tech
Arts & Entertainment
Ricky Gervais at a screening of 'Muppets Most Wanted' in London last month
tvRicky Gervais on the return of 'Derek' – and why he still ignores his critics
Sport
Luis Suarez of Liverpool celebrates his goal
sport
Arts & Entertainment
James Franco and Chris O'Dowd in Of Mice and Men on Broadway
theatreReview: Of Mice and Men, Longacre Theatre
Life & Style
Infant child breast-feeding with eyes closed
healthTo stop mummy having any more babies, according to scientists
News
news
Arts & Entertainment
film
Life & Style
Going down: Google's ambition to build an elevator into space isn't likely to be fulfilled any time soon
techTechnology giant’s scientists say there is no material strong enough for a cable from Earth into orbit
Arts & Entertainment
Homer meets Lego Marge in the 25th anniversary episode of The Simpsons, set to air on 4 May
tv
Life & Style
From long to Jong: Guy Pewsey gets the North Korean leader's look
fashionThe Independent heads to an Ealing hairdressers to try out the North Korean dictator's trademark do
Extras
indybest10 best smartphones
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit
Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics

Is sexual harassment a fact of gay life?

Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics
Moshi Monster creator Michael Acton Smith: The man behind a British success story

Moshi Monster creator Michael Acton Smith

Acton Smith launched a world of virtual creatures who took the real world by storm
Kim Jong-un's haircut: The Independent heads to Ealing to try out the dictator's do

Our journalist tries out Kim Jong-un's haircut

The North Korean embassy in London complained when M&M Hair Academy used Kim Jong-un's image in the window. Curious, Guy Pewsey heads to the hair salon and surrenders to the clippers
A History of the First World War in 100 moments: A forgotten naval victory in which even Nature played a part

A History of the First World War in 100 moments

A forgotten naval victory in which even Nature played a part
Vespa rides on with launch of Primavera: Iconic Italian scooter still revving up millions of sales

Vespa rides on with launch of the Primavera

The Vespa has been a style icon since the 1950s and the release this month of its latest model confirms it has lost little of its lustre
Record Store Day: Independent music shops can offer a tempting alternative to downloads

Record Store Day celebrates independent music shops

This Saturday sees a host of events around the country to champion the sellers of well-grooved wax
Taunton's policy of putting philosophy at heart of its curriculum is one of secrets of its success

Education: Secret of Taunton's success

Taunton School, in Somerset, is one of the country's leading independent schools, says Richard Garner
10 best smartphones

10 best smartphones

With a number of new smartphones on the market, we round up the best around, including some more established models
Mickey Arthur: Aussie tells ECB to stick with Ashley Giles

Mickey Arthur: Aussie tells ECB to stick with Ashley Giles

The former Australia coach on why England must keep to Plan A, about his shock at their collapse Down Under, why he sent players home from India and the agonies of losing his job
Homelessness: Why is the supported lodgings lifeline under threat?

Why is the supported lodgings lifeline under threat?

Zubairi Sentongo swapped poverty in Uganda for homelessness in Britain. But a YMCA scheme connected him with a couple offering warmth and shelter
A History of the First World War in 100 Moments: When the world’s biggest shed took over Regent’s Park

A History of the First World War in 100 Moments

When the world’s biggest shed took over Regent’s Park
The pain of IVF

The pain of IVF

As an Italian woman vows to keep the babies from someone else’s eggs, Julian Baggini ponders how the reality of childbirth is often messier than the natural ideal