Second Recession Is a Risk Because of U.K. Spending Cuts, Hargreaves Says

The U.K. will go back into recession if the government fully implements the spending cuts necessary for a sustained economic recovery, Hargreaves Lansdown Plc Chief Executive Officer Peter Hargreaves said.

“The U.K. economy is in a really bad state,” Hargreaves said today in a telephone interview. “If we are going to have the public sector we need, which is less than half the one we’ve got, then there are going to be an awful lot of people earning a lot less. I believe we haven’t had the worst of the recession yet.”

The coalition government, led by David Cameron, is planning to cut government spending by about 25 percent to lower the country’s record budget deficit, which widened as tax revenue slumped during the worst recession in a generation. The FTSE All-Share Index has dropped 9.4 percent since April as house price growth slowed and the government detailed spending cuts.

“My big worry is whether the government will do what they say they’re going to do,” Hargreaves said. “They’ll be one of the best governments we’ve ever had if they do it. You’ve actually got to suffer the pain.”

Hargreaves Lansdown, the U.K.’s biggest retail broker, said today that fiscal full-year profit rose 18 percent to 86.3 million pounds ($133 million) as funds under management increased. That missed the 88.5 million-pound median estimate of three analysts surveyed by Bloomberg. Net income gained 18 percent to 61.3 million pounds.

Fund Supermarket

Record low interest rates in the U.K. and an increase in Britons’ tax-free savings allowance helped raise investments in funds 25 percent to 488.2 billion pounds over the past 12 months, according to the Investment Management Association. Hargreaves Lansdown earns fees through its online fund supermarket and pension products.

Assets under administration climbed 47 percent to 17.5 billion pounds in the 12 months to June 30. Without the cost of a new 4.4 million-pound office, profit before tax would have been 90.7 million pounds, Hargreaves said.

The broker raised its full-year dividend 18 percent to 11.88 pence a share, missing the analysts’ estimate of 12.2 pence. The stock rose 7.8 pence, or 2 percent, to 396.9 pence at 8:23 a.m. in London trading.

Hargreaves, who founded the company with Stephen Lansdown in 1981, will step down as CEO tomorrow, to be replaced by deputy CEO Ian Gorham. Hargreaves will become an executive director, replacing Lansdown, who was named a non-executive director last week.

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

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