WEEKLY COMMENT 5-12-2013
By Barry Edwards
The Autumn Statement
The autumn statement was not an event that will change the course of history or anyone’s perception of the future of the UK economy. Overall, the speech was received well and most people seem to be content with the confirmation that the plans the government is following will continue now the economy has finally started to get up some steam.
It looks as though we should expect some form of tax cuts as we near the election in 2015 which is the usual policy most governments have practised in the past. Most of the fiscal stimulus that was announced was published prior to the statement apart from the business rate changes for the retail sector. There has been some serious lobbying for this and therefore it is not surprising this has been accepted as affordable by the coalition.
The news that growth in America in the last quarter has been revised up to show an annual figure of 3.6% is very reassuring since the USA has usually been the indication of where the UK economy is heading which has been showing annual growth of 3.2% according to the latest figures.
What this means is that we are seeing a more usual recovery path from recession and all the talk about this one being different is not actually happening. Many commentators were predicting a much slower recovery from this ‘Great Recession’ for the next five years because of the problems in Europe that could still flair up if the markets get nervous for some reason.
The big problem to be resolved in Europe is the recapitalisation of the banks to allow them to fund the demand from businesses that are eager to grow and expand. They are still by far the major providers of working capital for SME’s and this sector will not be able to grow without the banks raising extra capital to make that funding available.
The plans to make this happen are gradually being implemented but will take the next two years to be achieved and growth In the EU is likely to be patchy until that is completed. The divide between the north and south of Europe will become more pronounced while this is happening causing extra stress in the Eurozone potentially making it awkward for the politicians to hold it together. Ultimately this is the real risk in the EU and if a breakup did occur, recession would return with a vengeance. It is not surprising that investors are still cautious about Europe.
Geography makes Europe natural partners for the UK generating 50% of the export trade. While Europe is not growing this is a natural brake for the British economy which has been encouraging businesses to seek markets further afield with some success. The UK has evolved over the centuries to provide a lot of the services for traders and commerce which makes the makeup of the economy quite different to other European countries. It is for this reason that growth can flourish in the UK independently of Europe because the emerging markets need these services that are not yet developed in their own economies.
Although reading the press in this country does not make anyone think The UK is good at anything, when you speak with foreigners they say that they prefer to deal with British businesses for the quality of goods made here and the services that are available. The government has been very positive with the creation of the UK Trade and Investment (UKTI) that has encouraged many companies to travel to these countries and they are having many successes.
The UK has a lot more going for it than many people imagine and the Chancellor and the government are trying to promote that to the world outside Europe with high profile visits and some financial support where the resources allow some contribution to support trade and commerce.
It is this whole approach that the autumn statement is emphasising which is why it does not resonate with the general public particularly. Let’s hope the problems in Europe do not materialise and the encouraging trends outlined in the statement are allowed to flourish over the next few years.
That’s all this week, more observations next week.