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UK business spending seen hit by pensions

UK – The influential economic forecasting group the ITEM Club says it is still concerned that business expenditure in the UK is being hindered by pension fund deficits.

“One of the reasons for ITEM’s pessimism relative to the Treasury is that it remains concerned about the state of the company sector finances and the effect of pension fund deficits on business expenditure,” said the group, which is sponsored by Ernst & Young.

“Anecdotal evidence suggests that although the stock market is recovering, pension fund deficits remain a serious problem, particularly for small to medium sized companies. Thus ITEM believes that business investment is unlikely to recover as quickly as the Treasury is suggesting.”

A similar warning was made by the Bank of England in its inflation report in August – although its most recent report did not mention the issue.

The Treasury, headed by Chancellor of the Exchequer Gordon Brown, is forecasting economic growth of 3%-3.5% over the next two years - compared to consensus forecasts of 2.7% for both years. “The ITEM Club says the Chancellor is in denial,” the group said in its December economic update.

Meanwhile, aerospace company Rolls-Royce Group has said that 54% of its employees had accepted previously announced changes to its pension fund.

"Today's `yes' vote by the trade union members of the pension fund is the end of a long and difficult process that has seen Rolls-Royce meet many of the union's demands," Steve Wright, chair of the Rolls-Royce trade union Central Negotiating Committee, said in a statement.

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