Tuesday, January 03, 2012
HALF FULL OR HALF EMPTY? PROSPECTS FOR THE UK ECONOMY IN 2012
With official sources suggesting that the UK economy's growth will be just 0.7 per cent in 2012, it is not surprising that many commentators are queuing up to talk down the economic prospects of the nation.
The latest organisation to support this view is the Chartered Institute of Personnel and Development (CIPD), which predicted that the number of people out of work would reach 2.85 million by the end of next year, with the unemployment rate for the UK rising to 8.8 per cent, the highest figure since 1994.
Of course, it is not only what is going on within Britain itself that is important to our economy and it will be events elsewhere that will probably have the greatest influence on the nation’s recovery during the next twelve months.
The one thing most economists agree on is that the greatest danger to any recovery, regardless of any internal policy decisions by the Coalition government, is the eurozone's debt crisis. Whilst nearly all have predicted that the eurozone could return to recession in 2012, there remains some slight hope and optimism that this will be brief and that growth would follow in 2013 if those eurozone members can finally get their act together over the next few months.
And the potential good news for the UK is that once there is greater certainty over in the eurozone, it is likely that British firms, which are currently hoarding £70 billion of cash, will finally release that money for critical investment later in 2012, creating hundreds of thousands of jobs in the economy (and there was fascinating article yesterday in the Financial Times on this theme).
Whilst Europe remains likely to be in the doldrums for most of 2012, there is better news across the Atlantic in the USA. Not only is confidence growing amongst US consumers but economic figures seem very positive. The growth in GDP for 2011 has been better than predicted and American businesses have been creating more than 150,000 positions every month since September.
And if the World’s largest economy is set to grow next year, then as the USA is our largest export market by country, then it can only be good for British firms.
Therefore, as we begin what could be a tumultuous New Year for the UK economy, is there any hope for optimism, however small?
It is difficult to see any improvement during the first six months of 2012 in the UK economy but if we look beyond that, there are a number of indicators that suggest that we are not in as bad a shape as some would lead you to believe.
Let’s look at inflation, which has led to increased pressures on households during the last few months. Analysts are now predicting that the consumer price index will continue to fall during 2012, resulting in lower prices and hopefully, encouraging greater consumer spending that could help the economy recover towards the end of the year.
Within British industry, there are signs that the gradual rebalancing of the economy could well be reaping dividends in the long run. Take, for example, the car industry, which is undergoing a major renaissance as companies such as BMW, Jaguar Land Rover, Nissan and Toyota have announced £4 billion of investment into British plants, resulting in predictions of record exports for this year. Indeed, according to the Society of Motor Manufacturers and Traders, car exports will be 19 per cent higher in 2011 and will break all records next year. And it is exactly the type of industry that it needed within the UK, developing highly skilled engineering jobs that are producing high value exportable goods.
The aerospace industry has also being doing well in 2011 with Airbus, which manufactures its wings in North Wales, securing orders for nearly 1400 new planes by the end of November, nearly twice as many as its main rivals Boeing.
But it is not only large businesses that are having a positive effect.
Barclays Bank recently released data that showed that nearly 480,000 new businesses had been created over the last 12 months. In addition, the proportion of the self-employed that makes up the labour force is now at its highest level for 75 years. Now those who look through half empty glasses would suggest that people are starting their own businesses because of necessity i.e. that there is no other alternative employment available.
However, those of us who are more optimistic would suggest that this is the beginning of an entrepreneurial renaissance within the UK and one that is long overdue. And here, more than anywhere else, is where government can play a more direct role in these uncertain economic times. Not only can efforts be focused on providing the vital business support and mentoring to get these entrepreneurs through the difficult first two years of the business but they can also ensure that banks, especially those that remain in public ownership, are providing the necessary capital to enable people to start their own businesses as opposed to remaining unemployed.
So, whilst there remain serious challenges, the economic picture may not be as bleak as some would like to paint. Indeed, there is some hope that by the end of 2012, we could finally see the beginning of a revival in the UK’s economic fortunes.
Blwyddyn Newydd Dda, Happy New Year!