16 business focus
UK economy should enjoy an ’Indian summer’ after a dismal first half, says ITEM Club
After a dismal start to the year, the UK can expect an ’Indian summer’ with the Ernst & Young ITEM Club forecasting that the economy will return to growth in the second half of the year, boosted by falling inflation and pick-up in consumer spending
According to the ITEM Club’s latest quarterly forecast, inflationary pressures that have been battering household incomes are now easing much quicker than expected. Providing that commodity prices remain subdued, ITEM Club says that inflation should hit 1.7% by the end of the year, giving consumers extra cash in their pockets to spend on the high street.
However, the report warns that the fillip to consumer spending in the second half of the year will only enable UK GDP to mark time, with zero growth in 2012 as a whole. ITEM Club says that longer-term, sustainable growth remains dependent on an improvement in the UK’s export performance and business investment. ITEM is forecasting 1.6% GDP in 2013 and 2.6% in 2014.
But don’t expect a consumer-led recovery, says ITEM Club
Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club, comments: “Spiralling inflation has cut real wages by 7.5% over the past four years, but the squeeze is almost over. Inflation is now coming back to heel, helped by the chancellor’s decision to postpone the increase in fuel duty, falling energy and commodity prices, plus tax changes dropping out of the calculation.
“The boost to household finances and the subsequent pick up in spending should be enough to push the UK back into positive territory this year, but don’t expect a consumer-led recovery further out. Longer term, consumers are going to be more focused on reducing their debt burden rather than splashing the cash.“
According to the report, real disposable incomes are forecast to increase by 0.4% in 2012, before increasing by 1.5% in 2013. Consumer spending is expected to be flat for the year as a whole, with falls in the first half reversed in the second half, but stages a more convincing recovery in 2013, growing by 1.5%.
www.businessmag.co.uk
Ambitious entrepreneurs must export for growth
Neil Hutt, senior partner for Ernst & Young in Reading: Businesses across the region are facing the harsh realities of fragile home markets which could last for years to come. For many, there are uncertain growth prospects and with Europe and North America facing similar challenges, orders are hard to come by. So, with this backdrop what is an entrepreneur to do?
The successful companies are finding new customers and markets – this often means export markets. In a recent global survey we carried out of some 400 companies, India (34%) and China (33%) were cited as the most attractive economies for potential exports, followed by Brazil, Russia and Singapore.
Neil Hutt
Recovery could be quicker than expected
Business investment will only return to pre-recession peaks in 2015, according to the report, but Spencer says there is a chance that businesses could surprise on the upside.
He added: “The prospect of a durable UK recovery remains heavily dependent upon confidence in financial and business communities and it’s going to take time to re-build. However, a resolution of uncertainty about the euro could transform the outlook, pushing company spending up much faster than forecast.“
Details:
Julian Gray Senior partner for Southampton 023-8038-2100
Neil Hutt Senior partner for Reading 0118-9281599
www.ey.com/uk
However entrepreneurs need to understand that an export strategy is higher risk than staying in familiar territories, so many adopt a step-by-step approach. Entrepreneurs often use an agent to test the waters, followed by a joint venture with a local partner before a full-blown trading operation.
Seeking the best adviser is also crucial to export success. It is important to build a relationship with an adviser who can continue to offer their expertise as the business grows and confronts new challenges. Entrepreneurs looking to take their businesses to new markets would want an adviser with strong contacts in rapidly-growing markets around the world.
In the end, pretty much the oldest lesson in the book applies to entrepreneurs addressing markets in far flung corners of the world – getting face time with the customer, understanding in depth what works for them, and how you can deliver that profitably. For those seeking growth, the message is clear – rack up more air miles.
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – SEPTEMBER 2012
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