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UK business extremely reluctant to invest

In its Spring 2012 forecast for the UK economy, Ernst & Young’s ITEM Club says that central bankers have again saved the day with their unconventional monetary policies.

In particular, the European Central Bank’s long-term refinancing operations have bought more time for the euro, whilst in the US and the UK, further rounds of quantitative easing have turned investor sentiment from “risk off” to “risk on”.

However, while business spending has picked up nicely in the US, the UK’s plcs are still “extremely reluctant” to invest.

ITEM Club analysts expect UK business investment in 2012 to be in line with 2011′s “paltry” 1.2%, leaving it 12% below its 2008 level.

The influential forecasting body comments: “Consequently, the economy is bleeding cash into company coffers at an alarming rate.

“This haemorrhage is sapping the strength of the economy, keeping it on the critical list.

“Although the forecast sees business investment growing by 6% next year and a further 10% in 2014, this will not be sufficient to get the economy moving rapidly.”

Meanwhile, the company sector financial surplus moves up from 5.2% of GDP in 2011 to 5.7% in 2014, according to ITEM Club.

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