Following the result of the UK election, with the Conservatives surprisingly gaining an overall majority, the continuing austerity driven economic recovery should be possible. However should the excessive debt and borrowing figures not be eliminated, a failure from the Government’s first term in office, then the voters in 2020 will react accordingly. Other factors surrounding welfare spending, housing and net immigration will also be measured by the electorate.
Businesses have been wavering over the first few months of 2015, with the uncertainties of the election outcome, in putting into place their strategies and implementation activities. Now there is a clear result, and assuming the March budget announcements are implemented, there are significant opportunities for companies to consolidate their recovery and grow their businesses both organically and by acquisition. Outstanding matters on business rate reviews, borrowing and the impact of a potential vote on Europe will provide food for thought over the near to mid-term, but leveraging the strength and potential of SME’s is essential in the improvement of the economy.
Immediate senior management resource issues could play a part in SME’s not being to exploit their growth strategies and a solution is the use of a commercially focused independent executive on an interim basis.
MW Interim Finance can assist you in compiling or reviewing your business / risk plan in key commercial areas of your business, in addition to providing an independent CFO/FD resource on an interim basis. For further information or a confidential discussion about your specific requirements, please contact Martin Walby FCMA CGMA on + 44 (0) 7876 566875 or email firstname.lastname@example.org
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.
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 best news in the last week for the political parties in the run up to the UK election has been the Icelandic ash cloud that has engulfed most of Northern Europe over the last few days. Apart from causing travel chaos to thousands of people and costing the travel and ancillary industries millions in lost revenues, there have been enormous “green savings” due to reduced carbon emissions.
The Liberal Democrats have benefited the most as the opinion polls seem to show they possibly have potentially a bigger influence in the next Government than expected by the Conservatives or Labour, following the first live UK election television debate. However, the big issues still remain and also the uncertainty of how anyone in power will tackle them, especially as many of these will not be resolved during the next five years.
Whatever the outcome of the election, hung parliament or a majority winner, addressing UK debt, public sector spending cuts, tax increases, health, education, decline of sterling, interest rates and inflation indicates a slow recovery plan over a number of years to bring prosperity back to businesses and consumers.
At last the 6th May 2010, a date for the nation to decide on the next few years of Government. Which party, if any, will have the majority of the country’s vote and more importantly what will be the turnout level. The media have already done enough in the first few days since the announcement to put off would be voters by smothering us with their coverage and opinions on the state of each major party and the main issues as they see them.
Forget the nuances of tax and pensions for the top earners, it is the average and lower paid, unemployed, pensioners and businesses that need convincing on how politicians will deal with long term UK national debt, employment, interest rates, sterling, healthcare etc. Local authorities not delivering and high council tax levels are where the majority of the public see Government in action, (or not). Hospitals, education, re-cycling, road maintenance, (potholes and line painting), emergency services are a few of the issues to be addressed.
This is probably the most important election in decades and the media and politicians have the opportunity to engage with the nation and get everyone interested in the recovery of UK plc, but delivering change will involve some pain for all.