A year of recovery ahead, but not without fiscal pain

Equity strategist Henk Potts, who was in Yorkshire to address high net-worth individuals, also forecast that the rise in the UK stock market would continue, with shares currently looking undervalued in many cases.

He said equity markets would represent the best investment opportunity because corporate profitability was set to rise by 20 per cent across the world, with the low level of interest rates continuing well into this year. The level of share valuations meant the amount paid for shares still looked cheap.

"You should be looking to invest your money in developing markets like the UK and the US rather than paying expensive prices for modest emerging markets performance," he said.

Now the recovery has begun, Mr Potts added, there are opportunities in areas such as telecoms and pharmaceuticals.

The analyst, speaking in Leeds, predicted that UK economic growth would reach 1.1 per cent this year, compared to 2.3 per cent in the US and 1.7 per cent in Europe. China's expansion would continue with growth rising slightly to 9.4 per cent.

He said: "The UK is in for a very difficult time. Credit supply is still very tight. There is a serious fiscal tightening and that has to result in high taxes and lower spending.

"We are talking about a recovery but feeble growth in 2010."

He also warned that this would be the year when "the bills have to be paid".

"The authorities have mortgaged the future to pay for the present. 2010 will be the year when authorities around the world embark on the most protracted period of fiscal tightening in history. That process lasts for five years."

Mr Potts said the stock market would be affected by the manner in which the post-election Government handles financial regulation. The Conservatives want to scrap the Financial Services Authority and hand greater power to the Bank of England. Hector Sants, chief executive of the FSA and a vocal opponent of the Tory plans, announced on Tuesday that he would step down in the summer, saying he had always planned to serve only a three-year term.