July 2011 - UK growth set to outstrip Germany
Despite economic doom and gloom in the media, the UK is set to grow faster than Germany in the final nine months of this year.
That was the prediction from a round table of businessmen hosted by accountants Wilkins Kennedy and South East Business magazine at the Marriott hotel and country club near Maidstone. Adam Merrett, a partner in Wilkins Kennedy, said that despite the media painting a black picture about the economy, an analysis of the figures suggested that the UK was set fair for the rest of the year.
Before Mr Merrett spoke, Andrew Metcalf from Maxim PR and marketing, who chaired the meeting, reminded the meeting about why media commentators were unenthusiastic.
Growth in quarter one was 0.5% for the UK, O.8% for the eurozone, one per cent for France, 1.5% for Germany – and even Greece managed 0.8%. The question, said Mr Metcalf, was whether the South East doing the same or better?
Stirling slipped against the euro and dollar on growth forecasts, and interest rates have stayed at 0.5%. The consumer price index (CPI) inflation figure was at 4.5%, the second highest rate since 1997 when the Bank of England took charge of interest rates. Unemployment was 2.46 million, 36,000 down and the lowest since September 2010. Job seekers allowance claimants were are up by 12,500. In the 16 to 24 year old bracket, there were 935,000 unemployed, which is 20% of that economic group.
Mr Merrett agreed that inflation on the CPI measure was up from four per cent to 4.5%. “But the retail price index was down from 5.3 to 5.2%. In terms of growth, people are very quick to say Germany grew by 1.5% and we only grew by 0.5% in the quarter.
“What has not been highlighted is that the estimate of growth in the UK economy over 12 months is 1.7%, which seems to indicate there is another 1.2% of growth to come.” In Germany, the first quarter’s 1.5% was great, but their projection for the whole year is only 2.5%. “So for the final nine months of the year, that would indicate that the UK will grow faster than Germany. While the media can paint a very black picture of these things, I actually prefer to have a glass half full view.”
Reflecting on the implications of this economic data for Kent, Peter Symons from Locate in Kent reminded the round table that Pfizer’s decision to close its research and development facility in Sandwich had been a devastating piece of news. “I think it is devastating for the UK as well as Kent, and it has presented a huge challenge to us all as to how to try to salvage as much as we possibly can from the announcement they made and their departure.” The whole pharmaceutical industry is going through a structural change at the moment. “I don’t think that kind of primary research activity will be a path they follow. They will contract out a lot more of their research.” Some 2,400 direct employees will lose their jobs and there is almost as much impact on contractors at the Pfizer site. “What there is down there is a really prime, top quality site which is a national asset. There are genuine hopes that we can do something there.”
By contrast, Mr Symons said that wind turbine manufacturer Vestas’ intention to invest in the Port of Sheerness was good news. “If this goes ahead – and there is still a long way to go – it could create more than 2,000 jobs,” Mr Symons said. “The government has a part to play in Vestas’ thinking and they have not yet made an investment decision although they have committed to an option on the land. They need market and regulatory stability and they need to have as much policy certainty as they can get. At the moment, they do not feel they are getting that certainty, so there is a big message back to national government to clarify the policy environment to allow the market to operate in the normal way which would underpin any investment decision.” Mr Symons added that Vestas’ management was keen that the government should keep to its carbon reduction target and there should be no delay in meeting it.
Miranda Chapman from Pillory Barn Creative said that in the last six months, the business had become cautiously optimistic about prospects as a large amount of new business had been picked up from companies dealing with empty property management, insurance, manufacturing and waste management. “It is as if all those clients spent the last two or three years doing very little marketing and communications, and there is a sense that now is the time to kick start it again.”
Mark Richardson from MPW Insurance said the firm had a strong pedigree in the construction sector. “I am naturally optimistic, but we only tend to see positive green shoots in specialist areas. Some of these never seem to suffer a downturn – basement construction in London is one.” London boroughs are only too happy to provide people who do not want to move with more space, Mr Richardson said. “This is quite a big area which a lot of firms have moved into and continued to grow.”
MPW are brokers to the House Builders Federation, and Mr Richardson said there is a great increase in new developments. “Firms have just shut up shop or reduced their turnover in recent years, but in the last ten months we have seen far more activity from them. Sites which were previously mothballed have been re opened, particularly in the South East.” Having said that, margins are tight and construction firms are looking two or three months ahead in their forward order books rather than the six months they were used to a couple of years ago. “I would like to be more optimistic, but I haven’t yet seen enough to confirm that.”
Andrew Metcalf asked whether companies were waiting to use existing capacity rather than taking the jump into recruiting more staff. Kevin Connery from Bibby Financial Services said there were many enquiries from businesses which wanted to grow and were looking for finance. “In a lot of companies these days, the biggest asset is the sales ledger and a lot of their cash is tied up within that.” In Kent, he said there were enquiries from new start up businesses in transport, distribution and recruitment.
From Mr Connery’s perspective, the economy is growing and this is born out by the statistics. “The invoice finance market is growing. Time to pay arrangements are being adhered to and are still being given by HMRC.” VAT numbers for new start up businesses were difficult to come by, and VAT and PAYE criteria are being strictly applied. “But the whole doomsday scenario which insolvency practices were forecasting 18 months ago just hasn’t happened. I am not saying it won’t happen, but there were a lot of people sitting on their hands waiting for it to happen and it hasn’t done yet.”
One of the areas the government needs to look at where new businesses rise from the ashes of old businesses and HMRC asks for security deposits where that new business wants to register for VAT, said Adam Merrett. “If you are a new business trying to get off the ground and you are being asked for a £30,000 or £40,000 security deposit by the government, it is just going to stifle that business before it starts. So I think the government needs to look at that and either graduate that security deposit over a period of time or, if that is not possible, or bring in some mechanism whereby the banks can lend for that security deposit.” Businesses could then get off the ground, start being creative and producing wealth in their local areas.
As in previous round tables hosted by Wilkins Kennedy and South East Business, the banks were again accused of not lending enough money to businesses. Paul Saunders from Clydesdale Bank said Clydesdale was a non state owned bank funded by the Bank of Australia, and had a three per cent share of the UK market. “What that means is that people come to us from the big five banks with various schemes, and some of those are very good businesses.
“But they normally have some sort of Achilles heal, whether that is structural, financial or strategic. We have done some work recently which will create about 16 new jobs in the educational sector at Maidstone. But to get to that point was quite a painful process in that we had to virtually re engineer the company’s structure, we had to bring in professionals to advise, and the whole gestation period to do that deal was probably over and above what a high street bank would have the time, energy and capital to deal with.”
He added that there was something like £700 billion of fixed rate money up for review in the next 18 months. “The price of money has gone up and the availability of money is limited. Clients will be seeking money in the market place where there is not going to be enough supply for the demand. So that again is something that Kent businesses really need to get their heads round now and start engaging more with their advisers because a lot of them have taken the view that they will just hunker down and weather the storm. Of course strategically, that is just going backwards because they haven’t done the merger they should have done, taken on the staff they should have done or made the succession plans they should have done.”
