2012 recovery cannot rely on UK consumer, argues RCM’s Thomas

Any recovery in the UK economy over the next 12 months is likely to be driven by increased exports or business investment and not consumer spending, according to RCM’s Jeremy Thomas.

Thomas, the asset manager’s chief investment officer for UK equities, says the government has “little choice” but to continue with its deficit reduction plans – otherwise there is a real risk that bond yields could rise to “disastrous” levels.

“Unemployment is unlikely to fall in this environment and wage growth will remain subdued, suggesting consumer spending will continue to be weak,” he continues.

“Any upswing in economic growth will therefore have to come from improved exports or business investment.”

A study published today by Verdict Research predicts that consumer spending will grow by just £3.5 billion, or 1.2%, in 2012, its third slowest rate in four decades.

Although spending is expected to rise for food and clothing, consumers are tipped to cut back on household goods and home entertainment items.

Thomas adds that further risks to the UK economy come from its trade and financial linkages with the eurozone, which will act as a continued drag on confidence.

“It seems likely that the UK economy will flirt with recession throughout 2012 and the Bank of England will attempt to offset this via a rolling programme of quantitative easing,” the economist says.

Despite this negative backdrop, Thomas expects companies with strong international businesses and robust balance sheets to do well across 2012, especially if they are in defensive or less cyclical sectors such as pharmaceuticals, telecoms, utilities or household products.

Pharmaceutical giant GlaxoSmithKline, recruitment consultancy Reed, supermarket Tesco, distribution company Bunzl and consumer goods firm Unilever are among the stocks highlighted by Thomas as having the potential to perform well in the coming 12 months.

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