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Adviser's gloomy outlook on the state of economy
THE UK's economy will only record "paltry" growth during 2010, despite signs that the worst of the recession could be over, according to Roger Bootle, economic adviser to Deloitte.
However, he admitted that his previous forecast for a 25 per cent drop in profits this year now looks overly pessimistic.
He added: "I think that a fall of around 15 per cent now looks more likely. But this would still deal a severe blow to the corporate sector's finances. What's more, even if the economy is now growing again, it is not growing at the rates that in the past have been consistent with rises in profits."
Profitability began to deteriorate last year and the effects of the recession are now clearly taking their toll, Mr Bootle said.
Mr Bootle added: "Although the near-term outlook for the economy has recently improved, I doubt that it will be growing at rates consistent with rising profits until 2011 or even 2012.
"Of course, if the economic indicators continue to improve at their recent rates, it will not be long before they are consistent with GDP growth of 2 per cent or so.
"However, I think it more likely that the recent recovery starts to peter out as a number of factors, including weak bank lending, a deteriorating labour market and tighter fiscal policy – constrain economic growth.
"Although I now expect the economy to grow next year, it is set to be a pretty paltry expansion of around 0.5 per cent. Even in 2011, I think the economy will grow by just 1.5 per cent. If I am right, profits might not even start to rise until 2012 and further falls in total profits will continue to mask very different experiences amongst different sectors."
Mr Bootle's profitability monitor also concluded that the increased labour market flexibility had given firms greater scope to cut costs by reducing hours and average earnings, rather than by making staff redundant.
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