Greater confidence will boost business spending

21 January 2013

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21 January 2013 | Paul Snell

Spending by businesses will grow by 3.1 per cent this year, with a further 8.1 per cent in 2014, according to economists.

The publication of the latest report from Ernst & Young ITEM Club, an independent economic forecasting group, found investment was up by 5.1 per cent by the third quarter of 2012. Although this was a rise compared with the troughs seen during the recession, it remains some way short of the peak seen before the economic downturn.

The report said that although UK businesses had strong cash flow, companies remained uncertain about the financial problems in Europe and other financial markets such as China. But, it added, as these concerns fade, investment will continue.

According to Ernst & Young’s chief economist Mark Gregory: “Businesses have been shell-shocked by the experience of the financial crisis and it’s taking time to recover. Companies have the finance available to invest and expand into new markets, but a pervasive nervousness is causing many to sit on their hands until they see signs of a sustained recovery.

“The one thing they can be certain of is low growth. The worry is that this strategy could see UK companies losing out to competitors from countries such as Germany and the US, particularly given the upturn in business investment in these markets.”

The ITEM Club’s forecast for the UK economy is growth of 0.9 per cent this year, rising to 1.9 per cent growth in 2014 and 2.5 per cent by 2015.

Peter Spencer, chief economic adviser to the club, said the £5 billion investment in infrastructure promised by the chancellor in the Autumn statement, was a “missed opportunity” to boost the economy. He called for the government to be bolder, with greater investment in housing construction.

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