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UK growth will be half the official estimates in 2012

Ernst & Young's Item Club claims Britain will "stall until 2013".

The UK’s GDP growth will be a “dismal” 0.4 per cent in 2012 – half the Office for Budget Responsibility’s estimate of 0.8 per cent – according to a new report from Ernst & Young’s Item Club.

Peter Spencer, the Item Club’s chief economic adviser, says that though the UK has so far avoided the double-dip, “a lot still hangs in the balance”. 

Emergency measures from the Bank of England, the European Central Bank and the US Federal Reserve have boosted confidence and stabilised financial markets but the British economy is likely to stall until 2013. Those in the corporate sector, however, have been rapidly stockpiling wealth – according to the new forecasts, cash balances of private non-financial companies are worth over £754bn, which amounts to 50 per cent of GDP. In spite of this, in 2011, business investment only rose by 1.2 per cent.

Spencer argues: “Business investment has picked up nicely in the US but UK companies remain extremely risk averse, which is sapping strength from the economy. Until these companies stop stashing the cash and start increasing levels of investment and dividends, the economy will remain on the critical list.”

The report shows that even if businesses grow investment by 6 per cent in 2013 and 10 per cent in 2014, this won’t be enough – the company sector financial surplus is still expected to increase from 5.2 per cent of GDP in 2011 to 5.6 per cent in 2014.

Unemployment is set to be 9.3 per cent of the UK workforce by mid-2013, with just short of three million people out of work, before beginning to fall back. The additional slack in the labour market will also keep wage growth subdued.

However, with inflation expected to be close to its 2 per cent target by the end of 2012, driven by falling commodity prices, consumers are expected to see a gradual improvement in their levels of disposable income.

Yet Spencer warns: “Make no mistake, consumers can’t lead this recovery.”

The Item Club forecasts that disposable income will fall by 0.2 per cent this year, while consumer spending will increase by 0.8 per cent before accelerating to 1.1 per cent in 2013 as household incomes gradually strengthen.

In 2012, exports of goods in the UK are expected to be 4.5 per cent in volume terms with net exports adding 0.3 per cent to GDP. Although shipments to the eurozone have been restrained, exports outside of the EU to countries such as the US and China are experiencing strong growth.

Spencer concludes: 

With UK consumers still struggling to make ends meet and domestic demand in the doldrums, exports are helping to keep the UK in positive territory. A 0.3 per cent contribution to GDP might not sound a lot, but this will increase as international markets continue to improve.

However, this remains a major risk to our forecast. The Euro time bomb hasn’t been de-fused, while geopolitical tensions in the Middle East continue to be a cause for concern because of their potential to cause a spike in oil prices. If these crises escalate, UK exports and GDP would be a major casualty.

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’s 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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No, IDS, welfare isn't a path to wealth. Quite the opposite, in fact

Far from being a lifestyle choice, welfare is all too often a struggle for survival.

Iain Duncan Smith really is the gift that keeps on giving. You get one bile-filled giftbag of small-minded, hypocritical nastiness and, just when you think it has no more pain to inflict, off comes another ghastly layer of wrapping paper and out oozes some more. He is a game of Pass the Parcel for people who hate humanity.
For reasons beyond current understanding, the Conservative party not only let him have his own department but set him loose on a stage at their conference, despite the fact that there was both a microphone and an audience and that people might hear and report on what he was going to say. It’s almost like they don’t care that the man in charge of the benefits system displays a fundamental - and, dare I say, deliberate - misunderstanding of what that system is for.
IDS took to the stage to tell the disabled people of Britain - or as he likes to think of us, the not “normal” people of Britain -  “We won’t lift you out of poverty by simply transferring taxpayers’ money to you. With our help, you’ll work your way out of poverty.” It really is fascinating that he was allowed to make such an important speech on Opposite Day.
Iain Duncan Smith is a man possessed by the concept of work. That’s why he put in so many hours and Universal Credit was such a roaring success. Work, when available and suitable and accessible, is a wonderful thing, but for those unable to access it, the welfare system is a crucial safety net that keeps them from becoming totally impoverished.
Benefits absolutely should be the route out of poverty. They are the essential buffer between people and penury. Iain Duncan Smith speaks as though there is a weekly rollover on them, building and building until claimants can skip into the kind of mansion he lives in. They are not that. They are a small stipend to keep body and soul together.
Benefits shouldn’t be a route to wealth and DWP cuts have ensured that, but the notion that we should leave people in poverty astounds me. The people who rely on benefits don’t see it as a quick buck, an easy income. We cannot be the kind of society who is content to leave people destitute because they are unable to work, through long-term illness or short-term job-seeking. Without benefits, people are literally starving. People don’t go to food banks because Waitrose are out of asparagus. They go because the government has snipped away at their benefits until they have become too poor to feed themselves.
The utter hypocrisy of telling disabled people to work themselves out of poverty while cutting Access to Work is so audacious as to be almost impressive. IDS suggests that suitable jobs for disabled workers are constantly popping out of the ground like daisies, despite the fact that his own government closed 36 Remploy factories. If he wants people to work their way out of poverty, he has make it very easy to find that work.
His speech was riddled with odious little snippets digging at those who rely on his department. No one is “simply transferring taxpayers’ money” to claimants, as though every Friday he sits down with his card reader to do some online banking, sneaking into people’s accounts and spiriting their cash away to the scrounging masses. Anyone who has come within ten feet of claiming benefits knows it is far from a simple process.
He is incredulous that if a doctor says you are too sick to work, you get signed off work, as though doctors are untrained apes that somehow gained access to a pen. This is only the latest absurd episode in DWP’s ongoing deep mistrust of the medical profession, whose knowledge of their own patients is often ignored in favour of a brief assessment by an outside agency. IDS implies it is yes-no question that GPs ask; you’re either well enough to work or signed off indefinitely to leech from the state. This is simply not true. GPs can recommend their patients for differing approaches for remaining in work, be it a phased return or adapted circumstances and they do tend to have the advantage over the DWP’s agency of having actually met their patient before.
I have read enough stories of the callous ineptitude of sanctions and cuts starving the people we are meant to be protecting. A robust welfare system is the sign of a society that cares for those in need. We need to provide accessible, suitable jobs for those who can work and accessible, suitable benefits for those who can’t. That truly would be a gift that keeps giving.