UK corporate cash declined to £737bn (US$1.149 trillion) in the first quarter of 2012, according to figures issued by the Office of National Statistics (ONS). The figure represents a fall of more than 2% from Q411 when historically high cash reserves were reported for large corporates, with smaller firms struggling.
According to Anthony Carfang, a partner at treasury and liquidity consulting firm Treasury Strategies, corporate cash has followed a similar pattern across the UK, the eurozone and the US since the onset of the financial crisis in 2007-08. It has increased by 10% in the UK and the eurozone and by 14% in the US. In each case, cash is tracking closely with the local gross domestic product (GDP).
“However, the same can’t be said for bank reserves in these three regions,” said Carfang. “US bank reserves have been at 10% of GDP for the past year, reflecting the high levels of stimulus and quantitative easing. Stimulus in the UK is catching up, rising from 6% of GDP to 10% over the past year. Lagging the group, eurozone bank reserves stood at only 2% of eurozone GDP a year ago and are now approaching 8%.”
Separately, the Bank of England (BoE) said that UK banks should feel free to tap into their hefty cash piles to keep lending flowing to businesses, after final GDP figures for Q112 confirmed that the British economy has entered its second recession in four years.
The BoE’s financial policy committee (FPC) commented that banks had substantial reserves of short-term cash set away for market shocks, although it added that they should still be ready to forego paying as much in bonuses and dividends to build up longer-term capital buffers.
The country is expected to survive the review, which it must do to retain its place in the European Central Bank’s asset purchase programme.
The bank believes that the battered UK currency, recently only just holding above the US$1.20 level, could be trading at US$1.36 by this time next year.
The Middle East oil producer’s debut global bond issue surpassed the total of US$16.5bn raised by Argentina when it tapped the market earlier this year.
The group reports that currency fluctuations were less of a challenge to multinationals in the second quarter of 2016, but Brexit has since spelt a return to volatility.