Economic outlook for business summarises the latest UK quarterly forecast by the ITEM Club, and gives its assessment of its implications for business.

Headlines

• A UK recession may have been averted, but this year’s growth is likely to be lower than last year’s depressing 0.7%. The ITEM Club’s forecast sees growth at just 0.4% in 2012 and not returning to trend until 2014.
• Central bankers have again saved the day with their unconventional monetary policies. The ECB’s LTROs have bought more time for the euro, while in the US and the UK, QE2 has turned investor sentiment from ‘risk off’ to ‘risk on’. Central banks have now poured trillions of dollars and euros and a quarter of a trillion pounds into the markets to help their economies get out of recession. They cannot do much more to stimulate growth for fear of reigniting inflation, but they are there in the background if a new crisis emerges.
• Business spending has picked up nicely in the US, but UK plcs remain extremely reluctant to invest despite this proven ability of central banks to eliminate tail risk. The growth in UK business investment this year is likely to be similar to last year’s paltry 1.2%, leaving it 12% below its 2008 level. Consequently, the economy is bleeding cash into company coffers at an alarming rate.
• This haemorrhage is sapping the strength of the economy, keeping it on the critical list. Although the forecast sees business investment growing by 6% next year and a further 10% in 2014, this will not be sufficient to get the economy moving rapidly. The company sector financial surplus moves up from 5.2% of GDP in 2011 to 5.7% in 2014.

Projections

Figures are % change on previous year, except where shown.