In the last month or so I have attended various events where the subject of the UK economy has been a major topic. It is clear that the perception or otherwise of a slowly recovering UK economy is dependent on whether you are being targeted as a voter or a business, especially an SME company. Five years of record low Bank of England base rate however has left savers out of pocket against inflation but borrowers getting better deals. The problem for businesses who have been surviving with low interest rates is what happens when they rise, even by small increments.
The public perception, being generated by politicians and those picking the most apt economic statistics, suggest the worst is over and growth is picking up, unemployment falling and house prices booming. It is however questionable whether fuelling the economy with “help to buy” for new and other property values of £600k actually helps the banks to lend more. It also allows buy to let landlords cash-in but hopefully stimulates more movement in the property market for first time buyers and those who have held back on moving recently. The warning signs are that possibly interest rates will rise earlier, that has an impact on mortgage rates and repayments and that year after year there are significant increases in utility, food and fuel costs that outstrip increases in wages, let alone the inflationary impact.
From a business perspective the view of how government and the banks are helping business is somewhat different. The larger corporate businesses have survived in the main and retrenched by holding cash rather than borrowing, investing or acquiring companies, but this may change. The SME companies however are still finding it hard to get appropriate and cost effective funding from the banks with some not wishing to be rejected with the additional information and forecasts being demanded as part of the loan negotiations. Potentially rising interest rates, consistently high business rates and rents are being pushed upwards. One of the costs that will impact a vast number of smaller businesses in the next year is auto enrolment for pensions with all the associated costs and administrative burden being with the companies.
It is not all doom and gloom but it does look that the recovery of the economy is going to be over a number of years, and certainly after the next UK election, due in 2015.
Unemployment in the UK increased by 35,000 in the three months to October to 2.5 million, the Office for National Statistics (ONS) has said. It is the first time that the jobless measure has risen for six months however 33,000 of the increase was in the public sector, raising the overall unemployment rate up to 7.9%. It has been assumed that the private sector will mitigate many, if not all, of all current and future losses now resulting from the full impact of public sector cuts………..but with UK retailers suffering, VAT rising in January and businesses holding on to cash rather than investing there is a fragility to the economic recovery.
Millions of families are struggling to pay their bills — and the number is likely to increase in the new year, according to analysis from the Bank of England. The report published this week shows that two fifths of households have difficulty from time to time or constantly in meeting their monthly bills, compared with a third last year, and more than half regard their overdrafts or credit cards as a burden.
More than three years after the start of the credit crunch, the Bank of England warns today that a lack of available credit “continues to be one of the main factors holding back the economic recovery” and repeat warnings about the size and concentration of Britain’s banking sector.
The Bank of England is forcing high street lenders to repay £185 bn of emergency loans in an attempt to avert a new market meltdown next year. Bank officials have recently held meetings with four major banking groups and the biggest building societies demanding that the loans, which were handed out at the peak of the financial crisis, be paid back sooner than planned. Analysts warn that the tough line could stop banks lending to small businesses and slow down Britain’s economic recovery.
The messages therefore for a UK economic recovery are not looking good for 2011.
What news over the Summer for the UK;- Bank of England interest rates – no change, economic growth forecasts – no change and the football World Cup – a DISaster.
The coalition government has been away on holiday so no progress on getting the country back on track, and Labour meanwhile is trying to elect a new leader. Will the austerity measures actually bring about real cuts in the UK deficit or is it just a Lib / CON?
The Autumn has arrived and with it the reality of a long drawn out recovery, but not in house prices from latest comments. Travel disruption in the UK, public sector cut backs and general strikes in Europe could stifle any chance of a TENTative improvement in Euro growth estimates.
With no clear majority after the UK election, in essence a “hung parliament”, the country awaits the outcome of discussions between the main political parties on how a coalition government could optimise a strategy that would some positive impact on the economy.
The Bank of England also has held the UK base rate at 0.5% in May and decided not to pump any more money into the economy through quantitative easing. The British Chambers of Commerce and Institute of Directors both agree that with the fragile situation rates should not be raised. Inflation is over 3% for April and the last quarter’s initial growth estimates at 0.2%, half the final quarter of 2009 indicating another potential slow down in the economy.
All this pales into insignificance with the events surrounding the Greek debt crisis, and to a lesser extent the problems in Spain and Portugal, as the global markets declined rapidly last week when it appeared that Greece “had finally gone bust”. The reaction on Monday to a European Central Bank initiative for a three year stability package to support the Euro, thus stemming the decline of Eurozone countries, provided an initial 5% increase in share prices. The “see saw” antics of stock markets caused by over eager market makers shows that as a global institution, we are being influenced by a lot of uncertainty of what the future holds and when, or if, stability will return in due course.
Whatever the situation in the UK, now and in future months, it is the global macroeconomic movements that are going to influence a recovery or “double dip” recession in individual national economies, but the consumer and business will have to deal with fallout for some years to come.
The Bank of England kept interest rates at a record low of 0.5% for the 12th consecutive month on Thursday, a decision widely expected as any rise in the cost of borrowing could damage the UK’s fragile economic recovery. The bank has not pumped any more money into the economy under its quantitative easing (QE) but may have to restart its asset-buying programme, (QE), if the economic outlook deteriorates, but many analysts are predicting monetary tightening later this year. It appears that the “tensions that underlay the build-up of large world imbalances have not been resolved” and the UK’s largest export market, the euro zone economy, has stalled.
Despite the upward revision to GDP in the fourth quarter of last year, to 0.3% from an estimate of 0.1%, the economy remains weak. Businesses are still under serious pressure and the threat of a double-dip recession is more serious in the near future than risks of higher inflation.
The pound took a pounding last week and suffered its biggest one-day fall for more than a year amid the prospect of a hung Parliament, after the election mooted to be in early May this year. There are fears that this will prevent swift and decisive action being taken over Britain’s public finances. Sterling fell to under $1.50 for the first time in ten months and today closed at $1.51. Against the Euro it is only €1.11 and has remained at this level for some time, despite debt issues in Greece and Portugal putting pressure on the Euro.
The Bank of England has left the base rate at 0.5% for the twelfth month in a row and ceased pumping money into the UK economy, (quantitative easing). It did however indicate that it could recommence this if the economic situation deteriorates. A year on and there are no real signs of the economy recovering, and the stock market FTSE 100 has made a 10% downward correction since the end of 2009.
What next…….an election for sure, but no matter the political party in power, “Debt UK” is a fundamental issue that will not be resolved for a number of years. The pre budget report figures, issued in November 2009 on the expected reductions in debt, have now been revised with the figure of £40bn mooted in 2015/16 appearing far too optimistic a target.