According to one of the biggest investors on the stock market, there may a lack of incentive for UK companies to invest in 2012, which may lead to a further recession. Legal & General Investment Management has warned that growth targets are likely to be missed by the UK, resulting in recession, stagnant incomes and rising unemployment. LGIM manages £347bn in assets and has predicted GDP to fall to 0.4 percent in 2012, and 0.5 percent in 2013.
The situation is further compounded by UK businesses being reluctant to spend money, although many have stabilised in 2011. Although the UK corporate sector is reasonably healthy, the companies look at the outlook for demand, with no incentive to invest. Economist at LGIM, Tim Drayson said:
“They’re the only sector that have the cash to generate the effective growth. You need the corporate sector to borrow and invest. It’s hard to see the consumer doing much.”
Drayson predicts that job losses won’t be aggressive, as many businesses streamlined their workforce during the last recession. The Office for Budget Responsibility has cut its previous forecast for growth to 0.7 percent during 2012, with a huge rise to 2.1 percent in 2013. However, according to LGIM, the forecast is much too optimistic as Europe is the main trading partner for the UK, and as long as the EU is struggling the crisis will continue.
LGIM state that incomes have only recovered to a stagnant position, which means that consumer spending is unlikely to increase during 2012.
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