According to the Ernst & Young Item Club, British business has built up a formidable war chest, with companies holding £754bn – 50 per cent of GDP – in cash and bank deposits.
“We are going to continue on the critical list until companies get their chequebooks out — it’s as simple as that,” says Peter Spencer of York University, the author of the Item Club’s quarterly health-check of the economy. “They’re the only people that can pull us out of this.
“Business investment has picked up nicely in the US, but UK companies remain extremely risk averse, which is sapping strength from the economy.”
Entrepreneurs are nervous because of the Eurozone crisis, with many business owners adopting defensive tactics like hoarding cash and reducing debt
The Item Club expects the economy to stall for the rest of the year, until a more sustainable recovery takes place in 2013. It reckons economic growth for this year will come in at a “dismal” 0.4 per cent, half the 0.8 per cent predicted by the Office for Budget Responsibility.
It also says that the unemployment rate – currently at 8.4 per cent – will approach 9.3 per cent by the middle of next year, with the number of people out of work rising to almost three million before beginning to fall back.
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