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Ernst & Young’s Item Club has upgraded its forecast for UK domestic product growth from 2.5% to 2.9%. Almost contemporaneously the IMF has cut its forecast for global growth by 0.3% and left its expected growth rate for the UK unchanged at 2.7%. Good news for the UK, if these forecasts turns out to be correct.
Forecasting for the UK economy is almost the fool’s errand that predicting the British weather is. However in a globalized world and one in which our nearest neighbours and largest market for our goods and services are probably about the embark on quantative easing driving sterling higher and making their locally produced goods cheaper, it seems unlikely that we will be unaffected by this. And still less that we can grow faster than others when we rely so heavily on them for our growth.
There’s also what might be termed a micro economic problem too. Capita Asset Services suggest that FTSE 100 companies are hording rather than investing cash. In October 2014 there was £53.5Bn in cash on their balance sheets, an increase of some £16.5Bn. The BofE report for 4Q14 shows demand for lending in medium sized companies once again exceeded supply. For companies to grow there needs to be confidence, which it doesn’t appear some of the largest companies in the UK have and companies need working capital, which is not being provided in sufficient quantity.
Of course HMG is doing its best to build confidence, with some success and is helping with the working capital. The AltFi companies are also helping with working capital, but the industry has a very long way to go to replace what has been lost from bank lending.