The banks' refusal to lend is set to tip the UK back into
recession - as indicated by the latest GDP figures, an expert has
warned.
Briefing the financial community on the economic outlook at
seminars in Birmingham and Hockley Heath, Jim Wood-Smith, head of
research at wealth management group Williams de Broe, warned the
country could be "dead on its feet for a couple of decades".
In contrast much of the rest of the world would forge ahead, he
predicted.
However, for investors, 2012 was likely to be "a three-quarters
decent year" as equities were cheap.
Mr Wood-Smith told his audience, including independent financial
advisers, lawyers and accountants, that UK GDP growth may well
struggle to make three per cent for years to come.
And he put the blame squarely on the banks for the lack of
liquidity in the economy.
Money being pumped in by the Bank of England's quantitative
easing programme was being "hoarded" to shore up their balance
sheets.
Indeed there was evidence that the banks were becoming even
tighter with their money.
"Loans are not being rolled over as they become ever more
cautious. We are headed back into recession, an outcome
quantitative easing was designed to avoid.
"Unless something changes the outlook for the UK economy is very
poor. The danger is that it is dead on its feet for a couple of
decades."
Mr Wood-Smith said liquidity was the biggest challenge for the
Coalition Government and somehow the banks had to be persuaded into
lending again.
Their American counterparts were lending and the US was set for
a good year. Japan was finally a bright spot on the back of the
spending associated with tsunami re-construction. And the Emerging
Markets story was far from over.
Europe wouldn't go bust for two reasons - China wouldn't allow
it while a change of tack by the European Central Bank was
gradually bringing confidence back into the markets.
Asked to predict where the FTSE would close at the end of 2012,
55 per cent of a straw poll of the 50-strong Hockley Heath meeting
said 'about the same', with 39 per cent seeing a rise of more than
ten per cent and six per cent opting for it to slump ten per cent
or over.
The Birmingham meeting equivalent was 61 per cent, 28 per cent
and 11 per cent.