Only UK plc can help economy out of recession
EY ITEM Club's latest quarterly update says UK may recover sooner than expected
The UK economy will only return to sustainable growth when UK plc begins to invest again, according to the latest quarterly economic research published on Monday.
The Ernst & Young ITEM Club’s latest quarterly report said however that recovery may come sooner than expected with the economy returning to growth over the next six months beginning with an ‘Indian summer’.
EY recently found big business had stored up around £754 billion worth of cash on their balance sheets equating to "a staggering" 50 percent of GDP.
As long as commodity prices remain subdued inflation should fall to 1.7 percent by the end of the year giving cash-strapped shoppers extra spending money, EY said.
“The prospect of a durable UK recovery remains heavily dependent upon confidence in financial and business communities and it’s is going to take time to re-build,” Peter Spencer, chief economic advisor to the ITEM Club, said.
The report said it won’t be consumer spending that hauls the UK out of its second recession in four years but exports and business investment.
“The squeeze is almost over”, Spencer said, but added that “longer term, consumers are going to be more focussed on reducing their debt burden rather than splashing the cash”.
The report said that with the euro zone debacle looking more settled and an improving outlook for world trade, business confidence was expected to translate into investment.
“A resolution of uncertainty about the euro could transform the outlook, pushing company spending up much faster than forecast,” Spencer added.
George Osborne’s decision to postpone the increase in fuel duty coupled with falling energy and commodity prices and tax changes will boost the economy, the report found.
But it also warned that unemployment continued to rise and that the private sector would find it difficult to create jobs at its current rate to compensate for the losses in the public sector.
“With the size of the workforce continuing to increase, the unemployment rate is likely to nudge up,” added Spencer.
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