Notable Economic Forecasts

The UK has recently been dubbed by the Legatum Institute as “the third cheapest place in the world to start a business, far cheaper than the US or Germany.” The strength of the UK economy, which makes it one of the world’s most prosperous countries, is the underlying reason for creating successful businesses and opportunities for those seeking entrepreneurial roles. The Legatum Institute 2015 Prosperity Index, which is a league table ranking countries on the basis of economic success and a series of wellbeing indicators, ranks the UK (behind Germany) as the fifteenth most prosperous country in the world. (Norway has topped the ranking for the seventh consecutive year as the world’s most prosperous country.) However, as observed on this blog, misconduct in financial services is spiralling and no end to the conundrum appears to be in sight. In relation to trade, contrary to the findings of the Legatum Institute, the Institute of Chartered Accountants in England and Wales (ICAEW) has also found that business confidence in the UK is weakening and that investment is muted and exports are low.

For example, the Q4 2015 ICAEW/Grant Thornton UK Business Confidence Monitor results argue that though “still firmly in positive territory … the post-election honeymoon maybe over”. Exports and manufacturing have not been rebalanced which means there is continued reliance on domestic demand. In addition to the fall in business confidence after the post-election bounce, the Q4 2015 ICAEW/Grant Thornton report further found that exports are sliding below domestic sales, firms are restricting their budgets for R&D because they lack long-run confidence and skills shortages are rising – albeit wages are increasing steadily. The upshot is that business confidence is at its lowest level since 2013. Confidence in the services sector remains positive but is declining in the production sector.

In particular:

• business confidence sank again this quarter and is down on a year ago, but remains well into positive territory.

• turnover and gross profit growth has been slowing, although firms expect faster increases ahead.

• employment growth looks to be steadying at buoyant levels of close to 2%.

• as the labour market recovery continues, skills shortages appear to be worsening, particularly in construction and logistics.

• wage growth has slowed only marginally, and with continued “no-flation”, these increases are adding significantly to household spending power.

• confidence is rising in the retail and wholesale sector, but sliding back almost everywhere else.

• the South of England continues to see optimism levels holding firm, but Northern England and the Midlands are experiencing a confidence decline.

Furthermore, in its policy briefing entitled Business priorities for growing UK exports the Confederation of British Industry (CBI) has voiced concerns over a weakening of the British economy.

According to CBI – which in light of the appointment of its new director general Carolyn Fairbairn can be seen partially rowing back from its opposition to Brexit – weak export orders, the strength of the pound and falling demand are the main reasons for the softening of the UK economy. CBI is clear that challenges remain and therefore:

Despite some notable successes, the UK’s overall performance on exports has disappointed since 2011 against a tough global economic backdrop.