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Businesses should be prepared for slow growth

Consumers cannot be expected to drive the economic recovery, and the prospect of an economic turnaround depends on confidence in the business world, say Ernst & Young Item Club.

The Item Club’s latest forecast report says businesses should adjust to a “low-growth environment” and prepare themselves for unexpected acceleration in growth, or a downside shock.

Business are advised to look at capital investment plans, and ensure there is sufficient productive capacity to meet demand forecast for 2014-15.

The report also warns of potential pitfalls in pursuing export-led growth, suggesting this route has become squeezed as more countries follow the same strategy.

The report said: “The most likely outcome is that the UK muddles through staging a slow revival of activity as balance sheets, real wages and relative house prices continue to adjust.

“Growth in both domestic and overseas markets is likely to be subdued in the first half of the year, but ITEM expects to see stronger figures emerge in the second half, with GDP growing by 1.9% over 2014 and 2.5% in 2015.”

Mark Gregory, chief economist at Ernst & Young, commented: “The big risks that we encountered last year - the break up of the Euro, that sort of thing - are on the back burner and they’re much less likely to happen. Unfortunately it does leave us with an economy that is lacking confidence, and it’s going to take a long time for confidence to come back.

Mr Gregory added: “Employment is not going to be as strong as it was last year, and although there’s going to be strength in the housing market and the high street, it’s not going to be quite as strong as it has been in the high street.

“The big question mark lies over the mortgage markets and housing markets. There’s money on the table for mortgage borrowers; there’s actually money on the table for large corporates, but the big question is whether or not people will have the confidence to pick up that money and invest it.”

This was posted in Bdaily's Members' News section by Tom Keighley .