2014: a dangerous time for UK economy?
The latest British Chamber of Commerce Quarterly Economic Survey (QES) regional results have been released across the UK. The survey was carried out during Nov – Dec 2013 and as ever perhaps the most interesting element of the survey results is less the answers it provides than the questions it prompts.
In our region the survey shows that there has arguably been a slight softening in confidence levels since the previous QES report. However to focus upon the quarter by quarter fluctuations of the survey is, I think, to miss the point. It is more sensible to consider the broader picture – principally what is the overall ‘feel’ of the survey results and how does that compare with 6m ago or even 12m ago.
And on both these questions, the latest QES is robust. There is still a strong sense of optimism across both Service and manufacturing sectors. Not boundless and ‘o’er leaping itself’ that is true. But do we really want this? The confidence that exists has been there for well over a year and has, as far as we can deduce this from the QES answers, built gradually, slowly and, yes, carefully, over time.
We must also see the results against the wider international and national economic backdrop. Again there are cautiously encouraging signs here that recovery is building. Recovery in foreign markets is especially important to the coalition given that Mr Osborne had said that increasing exports together with greater business investment and higher savings rates would be the hallmarks of the robust UK economy which the Coalition sought to establish.
But we must be careful not to get carried away. The UK economy is still at risk. The all-important savings rate has declined from 7.3% to 5.8% of household disposable income from 2010 to 2013 and is forecast (oECD) to decline to 4.4% by 2015 – In Germany it is currently 9.9%. Business investment is still hampered by caution on the part of business and funders.
Not only this but the new British disease is being talked about once more – are we on the cusp of another housing bubble? And worse, is it being deliberately inflated as part of the drawing up of the battle lines for the 2015 general election?
From a recent YouGov survey it would seem that the public have a mixed view of the Chancellor: on the one hand they seem to accept the narrative that more cuts to government spending are require; but on the other they do not trust him to handle the economy effectively.
Overarching all of the above there is, I think, a sense of expectation building that 2014 will be better, in an economic sense, than 2013. And herein lies the danger of our title. If that expectation, that hope becomes thwarted and we do not get meaningful recovery in 2014. That could cause a collapse in the fledgling confidence levels. And we aren’t talking primarily business or funder confidence – we are most concerned about consumer confidence. It is consumption which is the core of our economy and so it is impossible to envisage meaningful economic strengthening in the absence of an increase in consumer confidence evidencing itself in increased spending levels. And further, it seems likely that the only way that such confidence will increase is once consumers feel that they have more disposable income to spend. The Ancient Romans used to say that ‘All roads lead to Rome’; I think that in the context of the UK’s economic position and the question of whether we have meaningful and sustainable recovery in 2014 ‘All recoveries stem from higher wages.’