Fears of relapse back into recession stoked by deleveraging

The UK economy is recovering, although we expect the recovery to be fragile and anaemic.

Deleveraging by the consumer and government will constrain demand, creating fears of a relapse back into recession. In addition, the ending of QE may put upward pressure on bond yields and downward pressure on sterling, neither of which would be welcome. However, this difficult economic environment is not necessarily bad news for equities. Company profits have started to recover, helped by significant corporate cost-cutting. Even modest amounts of top line growth combined with further discipline on costs could maintain the momentum established during 2009. In addition, more than half the...