Firms continue to hoard cash despite UK recovery

Blue-chip firms have bolstered their cash reserves by £42bn since the recession, according to a new study.

The combined cash pile of all FTSE 100 companies, excluding financials like banks, is now 34 per cent larger than in 2008, according to Capita Asset Services. Gross cash piles have climbed to a record £166bn, and net cash piles, a truer measure of balance sheet strength, have risen six-fold to £74bn.

Justin Damer, Capita’s commercial director, said: “The credit crunch was a huge shock for firms used to running lean finances. Companies re-engineered their balance sheets to a more defensive structure, paying off debt and stockpiling cash. But they have continued to hoard cash as the economy has gone back up through the gears, and this will prove unpopular with investors. They resent companies sitting on huge cash piles earning low returns.”

Mr Damer warned companies they may also face an additional tax on reserves if money remains uninvested, with the Government keen to encourage growth.

Meanwhile, the latest quarterly sentiment survey among small and medium-sized businesses, produced by accountancy firm BDO, shows that confidence is at a two-year high, with 67 per cent of firms saying they were optimistic about the UK’s economic prospects for the next 12 months, compared to only 8 per cent this time last year.