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Uk firms must spend their spare cash to aid recovery says report

UK firms must start spending their spare cash to ensure a durable economic recovery, a report has said.

The Ernst & Young Item Club said that with consumers under pressure, it was even more important for businesses to loosen their purse strings.

The research group said it expected the best opportunities lay in overseas expansion, but failing that, cash should be returned to shareholders.

The Item Club expects the UK economy to grow by 1.8% this year.

It then forecasts the growth rate will rise to 2.3% in 2012 and 2.7% in 2013.

With prospects of a consumer-led recovery clearly non-existent at the moment, Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, says that the stage is now set for a major revival in business spending and forecasts that businesses investment will increase by 12% this year, before rising by 14% in 2012.

He said: “We have long maintained the view that UK Plc’s must play a central role in the UK’s economic recovery.

“The importance of companies releasing some of the cash they have stockpiled over the recession cannot be underestimated.

“Their spare cash flows equate to nearly 7% of GDP. And with consumers still under pressure, we’re unlikely to see a durable recovery until UK Plc starts increasing investment or returning profits to shareholders through dividends.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .