Cazenove’s Jeffrey: Global slowdown is on the horizon

Group’s CIO says QE has led to decline in domestic demand and could spark downturn.

A decline in domestic demand brought on by quantatitive easing could result in a global slowdown, Cazenove’s CIO has warned.

Richard Jeffrey said  soaring prices, which have far outpaced average earnings growth, has left consumption looking vulnerable to a correction, which could hit economic growth.

“In the UK, final consumption in 2010 rose by only 0.6%. This year’s rise could be as little as 0.2%,” he said.

Jeffrey added UK consumers and their counterparts around the world are being taxed by moves from central banks – including the Bank of England and Federal Reserve – to introduce quantitative easing. He warned it could ultimately lead to a decline in economic growth worldwide.

“Decelerating economic activity is being bought about by rising raw material and energy prices, these being the direct consequence of quantitative easing,” he said.

“But it is not just the UK consumer that is being ‘taxed’ in this way. If anything, the impact on household spending in developing industrial economies could be greater.
“So it is not only in the UK there is likely to be a deceleration in activity over the coming quarters – this is likely to be a worldwide phenomenon.”

Jeffrey also warned inflation – currently at 4.5% using the government’s consumer prices index (CPI) measure – will rise further this year, with the retail prices index inflation excluding mortgage interest payments (RPIX) potentially hitting 6% in 2011, well above the target of 2.5%.