Last Friday I was fortunate to be part of a round table forum with the Bank of England. I have to admit I found it completely fascinating to hear the latest thinking on what’s affecting our economy, and to have the chance to feed back to the BOE my experience of what’s going on locally. And seeing as you won’t be getting a blog from me on Good Friday I thought you might like to hear about this instead.
Growth forecasts
Growth is running at between 0.7% and 0.9% a quarter – so that’s around 3% a year. Falling government spending and disposable income being squeezed by modest pay rises are believed to be holding back growth at the moment.
The Eurozone is still weak, and parts of it are still in recession. UK exports are expected to be hit by the rising British Pound, meaning our exports will become more expensive.
Investment by businesses has been weak as companies are either reluctant to take finance on, or can’t get / don’t think they can get finance to grow.
We’re not expecting to see a boom any time soon.
Inflation
Inflation is now 1.7% – so finally below the 2% target. And it’s expected to stay around 2% for the next 3 years. So that gives us some certainty with the budgets in our businesses.
Unemployment
Now at 7.2%, it’s very close to the target Mark Carney set as the trigger point for raising interest rates. As this has happened much sooner than anyone expected, they’re now looking at other measures such as capacity and vacancies.
I found it astounding that 90% of the employment created in the last year has been from people setting up their own businesses, so people are creating their own jobs.
Business outlook – job creation and investment
Business owners still don’t seem happy to be taking staff on, as they’ve been burned by having to let people go in the recession. So although there’s this “paranoid optimism” out there, many companies just aren’t acting on it yet. The apprentice scheme has helped many sectors as it’s seen as a lower risk way to recruit.
Companies do seem to more convinced now that the recovery is sustainable, and there are signs that order books are picking up.
Marketing directors and managers seem to be more confident and there are reports of bigger marketing pots this financial year.
Interest rates rises
Despite recent press articles, the Bank of England still believe it’s going to be around this time next year in quarter 2 that we see rates start to go up. And then it’s thought it will be a very gradual increase. They are certainly not expecting rates to go up quickly and don’t see the return to pre-recession rates any time soon.
Many banks are now moving to LIBOR pricing instead of a base + interest rate, which does make it a bit more difficult for business owners to understand what they’ll be charged.Despite recent press articles, the Bank of England still believe it’s going to be around this time next year in quarter 2 that we see rates start to go up. And then it’s thought it will be a very gradual increase. They are certainly not expecting rates to go up quickly and don’t see the return to pre-recession rates any time soon. Many banks are now moving to LIBOR pricing instead of a base + interest rate, which does make it a bit more difficult for business owners to understand what they’ll be charged.
Sector performance
Retail is thought to be the weakest at the moment, whereas pubs and restaurants have seen an upturn. People are prepared to spend a bit more on experiences than on buying stuff, and are less worried about losing their jobs.
Manufacturing is growing strongly, with the caveat about the concerns over export and the rise in the Pound. In particular aerospace, rail and construction products are doing well, and automotive remains very strong.
Barriers to growth
It’s still felt amongst many business owners that there is a lack of bank finance out there, and they fear getting turned down, so many just don’t bother. There’s also a lack of finance skills in businesses which is creating a lack of confidence to make the decisions to start growing again and taking staff on.
Housing Market
Although areas of the country have seen something of a boom in house prices, its thought that this will settle down as the new mortgage rules come into effect this month. Under these lenders have to prove affordability and mortgage approvals have already fallen significantly as lenders start to apply these new rules.