The focus this morning was on 3 key areas.
Is the election having any impact on decision making?
The short answer was No, not really. Some construction companies who supply the public sector are seeing delays in decision making by public authorities, but for most businesses, things are carrying on as normal. The general consensus seemed to be that whatever the outcome, the government will be so weak that they don’t really expect any significant change.
I learnt something new today, there is a period immediately before a general election whereby government aren’t allowed to announce anything new, or any decisions. Guess that makes total sense, but I just didn’t know it!
Labour costs – are companies seeing the pay pressure yet?
This debate descended quickly into the big issue of skills shortages, and then inevitably onto the failings of the education system to prepare kids for work – I think we strayed well off topic here but it did highlight just what a massive issue this is for most businesses. I see this a lot in my clients where they try to do the right thing in giving kids a chance on the apprentice scheme, but they are just so ill-prepared for the world of work they find themselves almost being their parents.
Industries such as law, professional services, skilled engineering, technology and design in particular are seeing real skills shortgages; there is a lot more poaching going and this is really pushing up wages in their sector. And many firms are finding they’re under constant threat of losing key staff.
I’m seeing that outside of these industries, companies are back to awarding the annual “inflation” pay rise of between 2% and 3% even though inflation is currently zero! Although most people aren’t seeing the kind of pay pressure that’s been expected from staff wanting to make up their lost years of no pay rises.
In some sectors like transport, there has been a lot of wage pressure, particularly with the advent of the new legislation meaning companies have to pay standard overtime as part of staff holiday pay. The transport industry relies on a lot of overtime as standard so in some cases this has taken a big chunk out of their margins.
Fuel prices
The general view here is that most firms really aren’t seeing the benefit of lower fuel prices. Utilities tend to already be locked into a long term contract and manufacturers are finding that their distribution suppliers aren’t lowering their prices unless they really put them under pressure. No one seemed to expect the low prices to continue long term.
Distribution companies are finding that the lower fuel price is being offset by the increase in driver pay and holiday overtime.
The overall outlook
My experience was echoed by many in the group that quarter 1 of this year has been very strong, but companies aren’t necessarily expecting that to continue into quarters 2 and 3. There is a feeling that the gradual improvement in the economy is continuing, but is by no means thriving. There is a concern that the wrong people in government could really mess it all up.
When I canvased my clients this week, the biggest concern by far was currency rates and the impact on imports and exports. Of particular concern was the strength of Sterling making exports to Europe expensive. One firm was reported to be losing £100k a month due to lower margins.
With the ECB committed to quantitative easing until 2016 the Bank did not see a change in this position in the short term. That alongside other global events seem to be of more concern to many business owners than the more likely domestic ones.
All in all nothing too surprising but it’s always good to check in and see what everyone else is experiencing.