The UK economy has avoided a double-dip recession but is likely to stall for the rest of 2012, according to the latest forecast from the Ernst & Young ITEM Club.
The independent think tank says emergency monetary policy action from the Bank of England, the European Central Bank and the US Federal Reserve has allowed the country to stave off a return to recession by stabilising financial markets and bolstering confidence.
But the group predicts that the UK economy will grow by a “dismal” 0.4 per cent this year, before accelerating to 1.5 per cent in 2013 and to 2.6 per cent in 2014.
Ernst & Young ITEM Club chief economic adviser Peter Spencer says: “The UK has so far avoided the dreaded double-dip, but a lot still hangs in the balance.”
The think tank points out that UK non-financial companies are worth more than £754 billion, or about half of GDP, and calls on them to channel funds into the economy.
Last year, business investment grew by just 1.2 per cent as firms continued to stockpile cash in a bid to strengthen their balance sheets.
Spencer comments: “Until these companies stop stashing the cash and start increasing levels of investment and dividends, the economy will remain on the critical list.”
However, unemployment is tipped to reach 9.3 per cent by the middle of 2013 and wage growth is likely to be subdued.
While this year’s London Olympics and falling inflation will support increased consumer spending, Spencer warns that households are likely to remain under intense pressure over the short term.
“Make no mistake; consumers can’t lead this recovery,” the economist says.