World Economic outlook - ITEM forecast UK Economic growth 2012 : The UK economy will grow at just half the pace of officuial estimates this year because companies are hoarding cash, a leading forecaster claimed today.
Economic growth for 2012 will come in at a 'dismal' 0.4 per cent, according to the Ernst & Young ITEM club - half the 0.8 per cent predicted by the Office for Budget Responsibility.
ITEM says economic activity is slowing more than expected because companies are hoarding a £754billion cash pile - equivalent to 50 per cent of the UK's total annual output.
By refusing to invest and create jobs, businesses 'are acting as a massive drag on the economy', claimed the independent group, which uses the same forecasting model as the OBR.
Business investment last year increased by just 1.2 per cent.
Peter Spencer, chief economic adviser to ITEM, said the UK will not prosper again until businesses invest their cash pile.
He said: 'Business investment has picked up nicely in the US but UK companies remain extremely risk averse, which is sapping strength from the economy.'
The UK economy grew just 0.7 per cent last year, after a 0.3 per cent contraction in the last quarter of 2011, and is expected to avoid a technical recession by nudging forwards 0.1 per cent to 0.2 per cent in the first quarter of 2012.
Mr Spencer said the Government was betting on the private sector to drive the economic recovery, but there was little sign it was rising to the challenge, which could cost ministers the next election.
While doubtful that George Osborne could change course and introduce tax changes that would penalise cash hoarding, Spencer said: 'If the business community does not grasp this opportunity, it will not be the next Budget that it has to worry about but the next Labour Budget.'
ITEM forecast growth to rise to 1.5 per cent in 2013 and 2.6 per cent in 2014.
In contrast to big business, households remain under intense pressure, the forecaster said, with private sector companies finding it increasingly difficult to create the jobs to offset losses in the public sector.
It expects unemployment to approach 9.3 per cent of the UK's total workforce by the middle of next year, with just short of three million people out of work, before beginning to fall back.
Mr Spencer continued: 'Households remain under the cosh and UK unemployment is set to go even higher by the end of the year.
'But there is a small glimmer of light at the end of the dole queue. For the first time in years, the gap between wage growth and inflation should start to close, before reversing in 2013.'
ITEM forecasts that disposable income will fall by 0.2 per cent in 2012, while consumer spending will increase by 0.8 per cent before accelerating to 1.1 per cent in 2013 as household incomes gradually strengthen.
Elsewhere, the Club has predicted that the UK's export performance should pick up despite shipments to the eurozone being restrained.
Exports of goods increased by 5.1 per cent in volume terms in 2011, while services were up by 3.9 per cent. The UK is expected to put in a similar performance this year, the ITEM Club said, with exports growing by 4.5 per cent and net exports adding 0.3 per cent to GDP.
Mr Spencer 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 is 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.'
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