Ernst & Young urges businesses to increase investment to help economy
The latest forecast from economic think-tank Ernst & Young Item Club has forecast GDP to be a ‘dismal’ 0.4 per cent in 2012.
The forecast figures signal even worse growth than 2011 when the economy grew by 0.7 per cent. The latest GDP figures from the Office for National Statistics will be released on 25 April.
GDP is forecast to rise more positively to 1.5 per cent in 2013 and 2.6 per cent in 2014.
Ernst & Young said the UK has so far managed to avoid a double-dip recession due to measures by the Bank of England, European Central Bank and US Federal Reserve.
Peter Spencer, chief economic adviser to the Ernst & Young Item Club, said it was up to businesses to drive recovery forward.
He 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’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.”
He blamed businesses ‘stashing cash’ and said they should start to increase their levels of investments and dividends.
The cash balances of private non-financial companies are worth over £754bn, 50 per cent of GDP, but business investment only increased by 1.2 per cent last year.
Mr Spencer 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.”